The Tax Cut and Jobs Act of 2017

TAX CUT AND JOBS ACT OF 2017 On December 22, President Trump signed into law the Tax Cut and Jobs Act (the “New Law�), the first major overhaul of the U.S. tax system in 30 years. The New Law's primary changes are to lower the corporate tax rate to 21%, lower and broaden the individual tax rates and brackets, provide a deduction for pass-through businesses, I.

INDIVIDUAL TAX REFORM

A.

RATES, STANDARD DEDUCTION, AND EXEMPTIONS

1.

Current Law

For tax year 2017, there are seven regular individual income tax brackets of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, and five categories of filing status.

The income levels for each bracket threshold are indexed annually based on increases in the Consumer Price Index (CPI).

2.

New Law

The New Law changes the tax rates and tax bracket structure by providing seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The new structure is in place for tax years beginning after December 31, 2017, and before January 1, 2026.

For married taxpayers filing jointly, the 12% bracket threshold is $19,050, the 22% bracket threshold is $77,400, the 24% bracket threshold is $165,000, the 32% bracket threshold is $315,000, the 35% bracket threshold is $400,000, and the 37% bracket threshold is $600,000.

For married individuals filing separately, the 12% bracket threshold is $9,525, the 22% bracket threshold is $38,700, the 24% bracket threshold is $82,500, the 32% bracket threshold is $157,500, the 35% bracket threshold is $200,000, and the 37% bracket threshold is $300,000.

For single filers, the 12% bracket threshold is $9,525, the 22% bracket threshold is $38,700, the 24% bracket threshold is $82,500, the 32% bracket threshold is $157,500, the 35% bracket threshold is $200,000, and the 37% bracket threshold is $300,000.

For taxpayers filing as head of household, the 12% bracket threshold is $13,600, the 22% bracket threshold is be $51,800, the 24% bracket threshold is be $82,500, the 32% bracket threshold is $157,500, the 35% bracket threshold is $200,000, and the 37% bracket threshold is $500,000.

For trusts and estates, the first $2,550 of taxable income is subject to a tax of 10%, the 24% bracket threshold is $2,550, the 35% bracket threshold is $9,150, and the 37% bracket threshold is $12,500.

B.

CAPITAL GAINS RATES

The New Law revises the 0% capital gains rate brackets by changing the 25% rate to a 15% rate threshold and changing the 39.6% rate threshold to a 20% rate threshold.

For married taxpayers filing jointly (and surviving spouses), the 15% rate threshold is $77,200, and the 20% rate threshold is $479,000.

For married taxpayers filing separately, the 15% rate threshold is $38,600, the 20% rate threshold is $239,500.

For taxpayers filing with head of Household status, the 15% rate threshold is $51,700, and the 20% rate threshold is $452,400.

For other individuals, the 15% rate threshold is $51,700, and the 20% rate threshold is $425,800.

C.

UNEARNED INCOME OF A CHILD

The New Law applies ordinary and capital gains rates applicable to trusts and estates to the net unearned income of a child. Any earned income of a child is taxed according to an unmarried taxpayer's brackets and rates.

The New Law does not require that the child's tax be affected by the tax situation of the child's parents or unearned income of any siblings. This change does not apply to tax years beginning after December 31, 2025.

D.

DUE DILIGENCE FOR HEAD OF HOUSEHOLD

Additionally, the New Law directs the Secretary of Treasury to promulgate due diligence requirements for paid preparers in determining eligibility for a taxpayer to file as head of Household.

If a paid preparer fails to follow the due diligence requirements promulgated by the Secretary, the paid preparer is subject to a $500 penalty.

E.

STANDARD DEDUCTION

Current Law An individual reduces adjusted gross income (AGI) by personal exemption deductions and either (i) the applicable standard deduction or (ii) itemized deductions, to determine taxable income. The basic standard deduction varies depending upon a taxpayer's filing status.

For 2017, the standard deduction is $6,350 for single individuals and married individuals filing separate returns, $9,350 for heads of Households, and $12,700 for married individuals filing a joint return. The

amounts of the basic and additional standard deductions are indexed annually for inflation (CPI). Taxpayers may elect to claim itemized deductions in lieu of taking the applicable standard deductions. Taxpayers blind or 65 or older are eligible for an increased standard deduction.

New Law The New Law increases the standard deduction to $24,000 for married individuals filing a joint return, $18,000 for taxpayers filing as head of Household, and $12,000 for all other taxpayers for taxable years beginning after December 31, 2017, and before January 1, 2026. In addition to enhancing the standard deduction, the New Law preserves the additional standard deduction for the elderly and the blind.

The New Law provides that these amounts be indexed for inflation using C-CPI-U This Is effective for taxable years beginning after December 31, 2017.

F.

PERSONAL EXEMPTIONS

Current Law A taxpayer generally may claim personal exemptions for the taxpayer, the taxpayer's spouse, and any dependents. For 2017, taxpayers may deduct $4,050 for each personal exemption. The exemption amount is indexed annually for inflation (CPI).

Additionally, a personal exemption phase-out (PEP) reduces a taxpayer's personal exemptions by 2% for each $2,500 ($1,250 for married filing separately) by which the taxpayer's AGI exceeds $261,500 (single), $287,650 (head-of-Household), $313,800 (married filing jointly), and $150,000 (married filing separately).

These threshold amounts apply to tax year 2017 (and also are indexed for inflation).

Is effective for taxable years beginning after December 31, 2017.

New Law The New Law suspends the deduction for personal exemptions for taxable years beginning after December 31, 2017, and before January 1, 2026, by making the exemption amount $0.

The New Law requires the Treasury to develop rules to determine the amount of tax required to be withheld by employers from a taxpayer's wages. The New Law gives the IRS discretion to leave withholding rules in place for 2018.

This provision Is effective for taxable years beginning after December 31, 2017.

G.

CHILD TAX CREDIT

Current Law

An individual may claim a $1,000 tax credit for each qualifying child under the age of 17. The aggregate amount of child tax credits that may be claimed is phased out by $50 for each $1,000 of AGI over $75,000 for single filers and $110,000 for joint filers. Neither the $1,000 credit amount nor the AGI thresholds are indexed for inflation. The taxpayer must submit a valid taxpayer identification number (TIN) for each child for whom the credit is claimed.

To the extent the child tax credit exceeds the taxpayer's tax liability, the taxpayer is eligible for a refundable credit (the additional child tax credit (ACTC)) equal to 15% of earned income in excess of $3,000. The taxpayer is not required to have a Social New Law The New Law makes several changes to the child tax credit for tax years beginning after December 31, 2017, and before January 1, 2026.

First, the New Law increases the child tax credit to $2,000 per qualifying child. Additionally, a $500 nonrefundable credit is available for qualifying dependents other than qualifying children. The New Law retains the current-law definition of dependent.

The maximum amount refundable may not exceed $1,400 per qualifying child.

The New Law requires taxpayers to provide the Social Security number of each qualifying child for whom the credit is claimed. This requirement does not apply to the $500 non-refundable credit.

Under the agreement, the child tax credit begins to phase out at $400,000 for married taxpayers filing a joint return and $200,000 for all other taxpayers. These amounts are not to be indexed for inflation.

Finally, the agreement does not increase the age limit for a qualifying child.

Is effective for tax years beginning after December 31, 2017.

H.

COVERDELL EDUCATION ACCOUNTS AND ยง529 PLANS

Current Law Income earned by Coverdell education savings accounts is exempt from tax. Contributions are not deductible and may not exceed $2,000 per beneficiary annually, and may not be made after the designated beneficiary reaches age 18 (except in the case of a special needs beneficiary).

The contribution limit is phased out for contributors with modified adjusted gross income between $95,000 and $110,000 ($190,000 and $220,000 for married taxpayers filing a joint return).

Distributions from a Coverdell account are excludible from the beneficiary's gross income if used to pay for “qualified education expenses”. Qualified education expenses include qualified higher education expenses and qualified elementary and secondary school expenses for attendance in kindergarten through grade 12.

New Law The New Law amends the definition of “qualified higher education expense” to include expenses for tuition paid in connection with enrollment or attendance at an elementary school or secondary public, private, or religious school. The New Law limits the amount of cash distributions to $10,000 per year for elementary and secondary school expenses.

The effective date of the provision is for distributions made after December 31, 2017.

I.

DISCHARGE OF STUDENT LOAN INDEBTEDNESS

Current Law Generally, debt that is forgiven constitutes gross income to the debtor, even if the debt is forgiven on account of death or disability.

However, certain student loans are excluded from income if cancellation of the student debt is contingent on the student's working for a certain period of time in certain professions.

There is another exclusion for the forgiveness of student loans made by educational organizations out of private, nongovernment funds if the proceeds are used to pay costs of attendance at an education institution or to refinance any outstanding student loans, and the student is not employed by the lender organization. However, if such loans are made or refinanced by educational organizations (or refinancing loans made by certain tax-exempt organizations), the cancelled student debt is not excludible from income unless the cancellation is contingent on the student working in an occupation or area with unmet needs and the work is required to be performed for, or under the direction of, a tax-exempt charity or a governmental entity.

Finally, gross income does not include any loan repayment amount received under the National Health Service Corps loan repayment program, certain state repayment programs, or any amount received by an individual under any state loan repayment or loan forgiveness program intended to provide for the increased availability of health care services in underserved or health professional shortage areas.

New Law The New Law excludes from taxable income for taxable years beginning after December 31, 2017, and before January 1, 2026, income resulting from the discharge of certain student debt on account of the death or total and permanent disability of the student.

“Eligible loans� include loans made by the United States, a state, certain tax-exempt public benefit corporations that control a state, county, or municipal hospital and whose employees have been deemed to be public employees under state law, an educational organization that originally received the funds from which the loan was made from the United States, a state, or a tax-exempt public benefit corporation, or private education loans.

This is effective for discharges of loans after December 31, 2017.

J.

EDUCATION DEDUCTIONS AND INCOME EXCLUSIONS

Current Law 1.

Interest payments on qualified education loans

An individual may claim an above-the-line deduction for interest payments on qualified education loans for qualified higher education expenses of the taxpayer, the taxpayer's spouse, or dependents. The maximum amount of the deduction is $2,500. Only taxpayers with modified adjusted gross income below certain inflation-adjusted amounts qualify for the exclusion. For 2017, the exclusion phases out between $135,000 and $165,000 for joint returns and between $65,000 and $80,000 for other returns. These income phase outs are indexed for inflation.

2.

Tuition and related expenses

Prior to 2017, an individual was able to claim an above-the-line deduction for qualified tuition and related expenses incurred. A taxpayer was ineligible for the deduction if one of the above credits was claimed (American Opportunity Tax Credit, Hope Scholarship Credit, or Lifetime Learning Credit). The maximum amount of the deduction was $4,000 for taxpayers whose adjusted gross income does not exceed $65,000 ($130,000 in the case of a joint return), and $2,000 for taxpayers whose adjusted gross income does not exceed $80,000 ($160,000 in the case of a joint return). The deduction expired for taxable years beginning after 2016.

3.

Interest on U.S. savings bonds

Interest on U.S. savings bonds is excluded from income if used to pay qualified higher education expenses.

Only taxpayers with modified adjusted gross income below certain levels qualify for the exclusion. For 2017, the exclusion phases out between $117,250 and $147,250 for joint returns and between $78,150 and $93,150 for other returns. The income phase outs are indexed for inflation.

4.

Qualified tuition reductions

Qualified tuition reductions provided by educational institutions to their employees, spouses, or dependents are excluded from income. The exclusion may be provided in the form of either reduced tuition or cash. The reduction must be part of a program that does not discriminate in favor of highly compensated employees

and may not apply to graduate programs (except for a graduate student who is teaching or a research assistant).

5.

Rollovers between qualified tuition programs and qualified ABLE programs

Owners of qualified tuition programs under §529 can rollover the funds to another account without subjecting the funds to income tax. Rollovers to qualified ABLE accounts under §529A are not permitted.

Qualified ABLE programs are tax-favored savings programs intended to benefit disabled individuals. They are established and maintained by state agencies (or instrumentalities thereof), and must meet certain conditions. For instance, contributions may be made to an ABLE account established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account and the program must limit a designated beneficiary to one ABLE account. Qualified ABLE programs are generally exempt from income tax, but are subject to taxes imposed on unrelated business income of a tax-exempt organization.

New Law The New Law permits taxpayers, before January 1, 2026, to roll over amounts from qualified tuition programs (§529 accounts) to ABLE accounts without penalty, but only if the designated beneficiary (or member of the beneficiary's family) of the qualified tuition plan owns the ABLE account. Such amounts count toward the overall limitation on contributions to an ABLE account within a tax year, and any excess amount are included in the distributee's gross income as provided by §72.

Is effective for distributions after the date of enactment.

II. A.

SIMPLIFICATION AND REFORM OF DEDUCTIONS

OVERALL LIMITATION ON ITEMIZED DEDUCTIONS

Current Law The total amount of otherwise allowable itemized deductions (other than medical expenses, investment interest, and casualty, theft, or wagering losses) is limited for certain upper-income taxpayers (sometimes referred to as the “Pease” limitation).

This limitation applies on top of any other limitations applicable to such deductions. Under the Pease limitation, the otherwise allowable total amount of itemized deductions is reduced by 3% of the amount by which the taxpayer's adjusted gross income exceeds a threshold amount.

For 2017, the threshold amount is (1) $261,500 for single individuals, (2) $313,800 for married couples filing joint returns and surviving spouses, (3) $287,650 for heads of Households, and (4) $156,900 for married individuals filing a separate return.

The Pease limitation does not reduce itemized deductions by more than 80%.

New Law The New Law suspends the overall limitation on itemized deductions during taxable years beginning after December 31, 2017, and before January 1, 2026.

This is effective for taxable years beginning after December 31, 2017.

B.

MORTGAGE AND HOME EQUITY INTEREST DEDUCTION

Current Law Taxpayers may claim itemized deductions for mortgage interest paid with respect to a principal residence and one other residence of the taxpayer. Taxpayers who itemize their deductions may deduct interest payments on up to $1 million in acquisition indebtedness (for acquiring, constructing, or substantially improving a residence), and up to $100,000 in home equity indebtedness. Under the alternative minimum tax (AMT), however, the deduction for home equity indebtedness is disallowed.

New Law For tax years beginning after December 31, 2017, and beginning before January 1, 2026, the New Law provides that, for taxpayer's that itemize deductions, to deduct qualified residence interest payments on indebtedness of up to $750,000.

The New Law grandfathers the treatment of indebtedness incurred on or before December 15, 2017. The New Law also contains a binding contract exception for written binding contracts entered into before December 15, 2017 (written binding contract to close on the purchase of a principal residence before January 1, 2018, and who purchases such residence before April 1, 2018).

The New Law also provides that qualified residence interest includes interest on refinanced indebtedness, but only to the extent the amount of indebtedness resulting from the refinancing does not exceed the amount of the refinanced indebtedness.

The New Law suspends the deduction for interest on home equity indebtedness for tax years beginning after December 31, 2017, and before January 1, 2026.

C.

STATE AND LOCAL TAXES

Current Law Individuals may claim itemized deductions for state and local government income and property taxes paid.

In lieu of the itemized deduction for state and local income taxes, individuals may claim an itemized deduction for state and local government sales taxes.

New Law The New Law generally provides that state, local, and foreign property taxes and State and local sales taxes paid by individuals are allowed as a deduction only when paid or accrued in carrying on a trade or business, or other income producing activity. The New Law generally denies a deduction for individual, state and local income, war profits and excess profits taxes, with the exception that an individual taxpayer could take an itemized deduction up to $10,000 ($5,000 for a married taxpayer filing a separate return) for the aggregate of (i) state and local property taxes not paid or accrued in carrying on a trade or business, or other income producing activity, and (ii) State and local income, war profits, and excess profits taxes paid or accrued in the taxable year.

This is effective for to tax years beginning after December 31, 2017, and beginning before January 1, 2026.

However, for an amount paid in a tax year beginning before January 1, 2018, with respect to a state or local income tax imposed for a tax year beginning after December 31, 2017, the payment shall be treated as paid on the last day of the taxable year for which such tax is so imposed for the purposes of applying the provision limiting the dollar amount of the deduction. Thus, an individual may not claim an itemized deduction in 2017 on a pre-payment of income tax for a future tax year in order to avoid the dollar limitation applicable for tax years beginning after 2017.

D.

PERSONAL CASUALTY LOSS DEDUCTION

Current Law Individuals may claim itemized deductions for personal casualty losses (i.e., losses not connected with a trade or business or entered into for profit), including property losses arising from fire, storm, shipwreck, or other casualty, or from theft. Certain tax legislation, including the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (Pub. L. No. 115-63), provided for a special above-the-line deduction for personal casualty losses arising from specified natural disasters.

New Law The New Law disallows the deduction for personal casualty and theft losses incurred in taxable years beginning after December 31, 2017, and before January 1, 2026, except for certain casualty losses incurred in a disaster declared by the President under ยง401 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act. Is effective for taxable years beginning after December 31, 2017.

E.

LIMITATION ON WAGERING LOSSES

Current Law

Taxpayers may claim itemized deductions for losses from gambling, but only to the extent of gambling winnings. However, taxpayers may claim other deductions connected to gambling that are deductible regardless of gambling winnings.

New Law The New Law clarifies that “losses from wagering transactions,” as that term is used in §165(d) — which allows losses from wagering transactions to be deducted only to the extent of the gain from wagering transactions — applies to the actual cost of wages as well as expenses incurred by the individual in connection with an individual's gambling activity. For example, an individual's otherwise deductible expenses in traveling to or from a casino is subject to the §165(d) limitation.

Applies for taxable years beginning after December 31, 2017, and before January 1, 2026.

F.

CHARITABLE CONTRIBUTIONS

Current Law 1.

AGI Limitation

Charitable contribution deductions to public charities and certain private foundations are limited to 50% of an individuals’ AGI. 2.

Contributions to colleges and universities for the right to purchase seating at athletic events A taxpayer may take a charitable contribution deduction for 80% of the amount contributed to or for the benefit of an educational organization where the donor receives the right to purchase tickets for seating at an athletic event in an athletic stadium of such institution.

3.

Charitable mileage rate for passenger automobile use

Taxpayers are entitled to a charitable deduction when using their passenger automobile in providing services to a charitable organization at a standard mileage rate of $0.14 per mile.

4.

Exception to substantiation requirements when donee organization files return with required information Subject to regulations to be drafted by Treasury and the IRS, taxpayers are not required to provide a contemporaneous written acknowledgment of their donations of $250 or more when a donee organization files a return with the required information.

New Law

The New Law increases the limitation for cash contributions by individual taxpayers to 60% of the individual's AGI for taxable years beginning after December 31, 2017, and before December 31, 2026.

The New Law eliminates in its entirety the deduction for contributions to educational organizations when a donor receives the right to purchase tickets for seating at athletic events by providing that no deduction is available for such contributions.

Is effective for contributions made in taxable years beginning after December 31, 2017.

The New Law repeals the exception to the contemporaneous written acknowledgement requirement for contributions of $250 or more when the donee organization files the required return.

Is effective for taxable years beginning after December 31, 2016.

G.

MEDICAL EXPENSE DEDUCTION

Current Law Taxpayers may claim itemized deductions for out-of-pocket medical, dental and related expenses of the taxpayer, a spouse, or a dependent not compensated for by insurance. This deduction is allowed only to the extent the expenses exceed 10% of the taxpayer's adjusted gross income. A special rule applicable to taxpayers (or their spouses) who have attained the age of 65 before the close of tax years beginning after December 31, 2012 and ending before January 1, 2017, reduced the floor to 7.5%. This rule is disregarded, however, for the purposes of computing the alternative minimum tax.

New Law The New Law extends the 7.5% floor to any taxpayer, regardless of age, for taxable years beginning after December 31, 2016, but ending before January 1, 2019. The minimum tax preference also not applies for those same years.

H.

ALIMONY DEDUCTION

Current Law Alimony payments generally are allowed as above-the line deductions for the payor, and are included in the income of the payee. However, alimony payments are neither deductible by the payor, nor includible in the income of the payee, if designated as such by the divorce decree or separation agreement.

New Law The New Law repeals the deductibility of alimony payments, and repeals the inclusion of alimony payments in the payee's gross income. These changes are effective for a divorce decree or separation agreement executed after December 31, 2018, or for any divorce or separation instrument executed on or before

December 31, 2018, and modified after that date, if the modification expressly provides that the amendments made by the section apply to such modification.

I.

MOVING EXPENSE DEDUCTION

Current Law Taxpayers may claim deductions for moving expenses incurred in connection with starting a new job, regardless of whether or not the taxpayer itemizes his deductions. To qualify, the new workplace generally must be at least 50 miles farther from the former residence than the former place of work or, if the taxpayer had no former workplace, at least 50 miles from the former residence.

New Law The New Law disallows the deduction for moving expenses during any taxable year beginning after December 31, 2017, and before January 1, 2026, other than for members of the Armed Forces.

Is effective for taxable years beginning after December 31, 2017.

J.

EXPENSES ATTRIBUTABLE TO THE TRADE OR BUSINESS OF BEING AN EMPLOYEE

Current Law Taxpayers generally may claim deductions for trade and business expenses, regardless of whether the taxpayer itemizes deductions or takes the standard deduction. Taxpayers generally may claim expenses relating to the trade or business of being an employee only if they itemize deductions. Certain expenses attributable to the trade or business of being an employee, however, are allowed as above-the-line deductions, including reimbursed expenses included in the employee's income, certain expenses of performing artists, certain expenses of state and local government officials, certain expenses of elementary and secondary school teachers, and certain expenses of members of reserve components of the U.S. military.

Eligible educators above-the-line deduction is for any ordinary and necessary expenses incurred (1) for professional development courses, or (2) for materials (books, supplies, computers, and other supplementary materials) used in the classroom. The deduction may not exceed $250 (for 2017). This amount is indexed for inflation.

New Law The New Law suspends all miscellaneous itemized deductions that are subject to the 2% floor under present law, including expenses attributable to the trade or business of performing services as an employee, for tax years beginning after Dec. 31, 2017, and before Jan. 1, 2026.

K.

MISCELLANEOUS ITEMIZED DEDUCTIONS

Current Law Miscellaneous itemized deductions may be deducted only to the extent that they exceed 2% of a taxpayer's adjusted gross income. Miscellaneous itemized deductions that are subject to the 2% floor of adjusted gross income include all itemized deductions except those specifically excluded in §67. Miscellaneous itemized deductions include: expenses for the production or collection of income, unreimbursed expenses attributable to the trade or business of being an employee, and other miscellaneous deductions.

Expenses for the production or collection of income include appraisal fees for a casualty loss or charitable contribution, casualty and theft losses from property used in performing services as an employee, clerical help and office rent in caring for investments, depreciation on home computers used for investments, excess deductions (including administrative expenses) allowed a beneficiary on termination of an estate or trust, fees to collect interest and dividends, hobby expenses (but generally not more than hobby income), indirect miscellaneous deductions from pass-through entities, investment fees and expenses, loss on deposits in an insolvent or bankrupt financial institution, loss on traditional IRA or Roth IRAs, repayments of income, safe deposit box rental fees, service charge on dividend reinvestment plans, and trustee's fees for an IRA (if separately billed and paid).

Unreimbursed expenses attributable to the trade or business of being an employee include business bad debt of an employee, business liability insurance premiums, damages paid to a former employer for breach of an employment contract, depreciation on a computer a taxpayer's employer requires him to use in his work, dues to a chamber of commerce if membership helps the taxpayer perform his job, dues to professional societies, educator expenses, home office or part of a taxpayer's home used regularly and exclusively in the taxpayer's work, job search and expenses in the taxpayer's present occupation, laboratory brokerage fees, legal fees related to the taxpayer's job, license and regulatory fees, malpractice insurance premiums, medical examinations required by an employer, occupational taxes, passport fees for a business trip, repayment of an income aid payment received under an employer's plan, research expenses of a college professor, rural mail carriers’ vehicle expenses, and subscriptions to professional journals and trade magazines related to a taxpayer's work, tools and supplies used in the taxpayer's work, purchase of travel, transportation, meals, entertainment, gifts, and local lodging, union dues and expenses, work clothes and uniforms, and work-related education.

Other miscellaneous deductions include repayments of income received under a claim of right (only subject to the two-percent floor if less than $3,000), repayments of Social Security benefits, and the share of deductible investment expenses from pass-through entities.

New Law The New Law suspends all miscellaneous itemized deductions that are subject to the 2% floor for taxable years beginning after December 31, 2017, and before January 1, 2026.

Is effective for taxable years beginning after December 31, 2017.

L.

DEDUCTION FOR LIVING EXPENSES INCURRED BY MEMBERS OF CONGRESS

Current Law Section 162(a) deems the place of residence of a senator or representative within the state or district he represents to be his or her tax home and limits the member's annual deduction for living expenses to a maximum of $3,000.

New Law The New Law provides that members of Congress are no longer allowed to deduct living expenses of up to $3,000 per year while away from their congressional districts or home states.

Is effective for taxable years beginning after the date of enactment.

M.

EMPLOYEE ACHIEVEMENT AWARDS

Current Law Employee achievement awards are excluded from employees' income and deductible to the employer, within certain limitations. To qualify for the tax exclusion, an employee achievement award must be tangible personal property given in recognition of the employee's length of service or safety achievement at a ceremony that is a meaningful presentation. Furthermore, the conditions and circumstances cannot suggest a significant likelihood that the payment is disguised compensation. The employee is taxed to the extent that the cost (or value, if greater) of the award exceeds the employer's deduction for the award. The employer's deduction for employee achievement awards for any employee in any year cannot exceed $1,600 for qualified plan awards, and $400 otherwise. A qualified plan award is an employee achievement award that is part of an established written program of the employer, which does not discriminate in favor of highly compensated employees. In addition, the average award (not counting those of nominal value) may not exceed $400.

Prop. Reg. §1.274-8(c)(2) excludes from the definition of “tangible personal property” cash or gift certificate, or vacations, meals of lodging, tickets to theater and sporting events and stocks, bonds, and other securities.

New Law The New Law codifies Prop. Reg. §1.274-8(c)(2) to exclude from the definition of tangible property cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements conferring only the right to select and receive tangible personal property from a limited arrange of such items pre-selected or pre-approved by the employer), or vacations, meals, lodging, tickets to theater or sporting events, stocks, bonds, other securities, and other similar items.

Is effective for amounts paid or incurred after December 31, 2017.

N.

QUALIFIED BICYCLE COMMUTING REIMBURSEMENT

Current Law Qualified bicycle commuting reimbursements of up to $20 per month are excludible from an employee's gross income. Amounts that are excludible from gross income for income tax purposes also are excluded from wages for employment tax purposes.

New Law The New Law repeals the exclusion from gross income and wages for qualified bicycle commuting reimbursements for taxable years beginning after December 31, 2017, and before January 1, 2026.

Is effective for taxable years beginning after December 31, 2017.

O.

EXCLUSION FOR QUALIFIED MOVING EXPENSE REIMBURSEMENT

Current Law Qualified moving expense reimbursements provided by an employer to an employee are excluded from the employee's income.

New Law Includes moving expense reimbursements in an employee's gross income during any taxable year beginning after December 31, 2017, and before January 1, 2026, other than for active military who moves pursuant to a military order and incident to a permanent change of station.

Is effective for taxable years beginning after December 31, 2017.

P.

INCREASED CONTRIBUTIONS TO ABLE ACCOUNTS AND SAVER'S CREDIT

Current Law Qualified ABLE programs are tax-favored savings programs intended to benefit disabled individuals. They are established and maintained by state agencies (or instrumentalities thereof), and must meet certain conditions. For instance, contributions may be made to an ABLE account established for the purpose of meeting the qualified disability expenses of the designated beneficiary of the account and the program must limit a designated beneficiary to one ABLE account. Qualified ABLE programs are generally exempt from income tax, but are subject to taxes imposed on unrelated business income of a tax-exempt organization.

Contributions to ABLE accounts must be made in cash and are not deductible under federal tax law.

Additionally, ABLE accounts cannot receive contributions for a tax year in excess of the annual gift tax exclusion amount ($14,000 per done for 2017), except in the case of a rollover from another ABLE account.

Contributions must also not exceed limits imposed on accounts under the qualified tuition program of its respective state, and a qualified ABLE program must provide safeguards to ensure such. Income on ABLE accounts is not subject to current income tax.

The saver's credit is a nonrefundable tax credit for eligible taxpayers for qualified retirement savings contributions. The maximum annual contribution eligible for the credit equals $2,000 per individual, and the credit rate depends on the adjusted gross income (AGI) of the taxpayer. For tax years beginning in 2017, married taxpayers filing joint returns with AGI of $61,500 or less, taxpayers filing head of Household returns with AGI of $46,125 or less, and all other taxpayers filing returns with AGI of $30,750 or less are eligible for the credit. As a taxpayer's AGI increases, the credit rate decreases, and is eventually unavailable.

The saver's credit is in addition to any deduction or exclusion that otherwise applies with respect to the contribution. It offsets AMT liability and regular tax liability. The credit is available to individuals of at least 18 years of age, other than individuals who are full-time students or claimed as a dependent on another taxpayer's return.

Qualified retirement savings contributions include elective deferrals to a ยง401(k) plan, a ยง403(b) plan, a governmental ยง457, a SIMPLE plan, or a SARSEP. Also included are contributions to a traditional or Roth IRA, and voluntary after-tax employee contributions to a qualified retirement plan or ยง403(b) plan, but not contributions to ABLE accounts. Contributions to the arrangement cannot exceed the lesser of an annual dollar amount (for example, in 2017, $5,500 in the case of an IRA of an individual under age 50) or the individual's compensation that is includible in income.

The amount of any contribution eligible for the credit is reduced by distributions received by the taxpayer from any retirement plan to which eligible contributions can be made during the tax year for which the credit is claimed, during the two-tax years before the year for which the credit is claimed, and during the period after the end of the tax year for which the credit is claimed and before the due date for filing the taxpayer's return for the year. Distributions rolled over to other retirement plans do not affect the credit.

New Law The New Law increases the contribution limit to ABLE accounts with respect to contributions made by the designated beneficiary of the ABLE account. Once the overall limitation on contributions is reached, the designated beneficiary will be able to contribute an additional amount, up to the lesser of the federal poverty line for a one-person Household, or the individual's compensation for the tax year if made before January 1, 2026.

The New Law requires a designated beneficiary, or a person acting on behalf of a designated beneficiary, maintain adequate records to ensure that additional ABLE account contributions do not exceed the lesser

of the federal poverty line for a one-person Household or the individual's compensation for the tax year.

The designated beneficiary, or a person acting on behalf of the designated beneficiary, is also be obligated to ensure compliance with the additional contribution limitation.

The New Law also permits the designated beneficiary to claim the saver's credit contributions made to his or her ABLE account if made before January 1, 2026.

Is effective for tax years beginning after the date of enactment.

III. A.

SIMPLIFICATION AND REFORM OF SAVINGS, PENSIONS, RETIREMENT

ROTH IRA AND TRADITIONAL IRA RECHARACTERIZATION

Current Law An individual may recharacterize a contribution to a traditional IRA as a contribution to a Roth IRA, and vice versa. An individual also may recharacterize a conversion of a traditional IRA to a Roth IRA. The deadline for recharacterization generally is October 15 of the year following the conversion. When a recharacterization occurs, the individual is treated for tax purposes as not having made the conversion. The recharacterization must include any net earnings related to the conversion.

New Law B.

ROLLOVER OF PLAN LOAN OFFSETS

Current Law Employer-sponsored retirement plans may provide loans to employees. Unless the loan satisfies certain requirements in both form and operation, the amount of a retirement plan loan is a deemed distribution from the retirement plan. A deemed distribution of an unpaid loan balance is generally taxed as though an actual distribution occurred, including being subject to a 10% early distribution tax, if applicable. A deemed distribution is not eligible for rollover to another eligible retirement plan.

A plan may provide that an employee's obligation to repay a loan is accelerated and, if the loan is not repaid, the loan is cancelled and the amount in the employee's account balance is offset by the amount of the unpaid loan balance (loan offset).

A loan offset is treated as an actual distribution from the plan that is eligible for tax-free rollover to another eligible retirement plan within 60 days.

New Law

An employee who has taken a plan loan has until the due date for filing the employee's tax return for that year (including extensions) to contribute the loan balance to an IRA (instead of the current 60 days) to avoid having the loan amount treated as a taxable distribution. The transfer is treated like a tax-free rollover.

This rule applies to employees whose plans terminate or who experience a severance from employment while having a plan loan outstanding. The plan loan offset must relate to a loan that satisfies ยง72(p)(2), otherwise the loan will be treated as a taxable deemed distribution under ยง72(p)(1).

Applicable to taxable years beginning after Dec. 31, 2017.

C.

LENGTH OF SERVICE AWARDS FOR PUBLIC SAFETY VOLUNTEERS

Current Law Special rules apply to deferred compensation plan bills of State and local government and private, taxexempt employers. However, an exception to these rules applies in the case of a plan bill that pays solely length of service awards to bona fide volunteers or their beneficiaries on account of qualified services performed by the volunteers. The exception applies only if the aggregate amount of length of service awards accruing for a bona fide volunteer with respect to any year of service does not exceed $3,000.

New Law The New Law increases the aggregate amount of length of service awards for a bona fide volunteer to $6,000, subject to adjustment for inflation after the first year being in effect. For a defined benefit plan, the limit applies to the actuarial present value of the aggregate amount.

Is effective for taxable years beginning after December 31, 2017.

IV. A.

TAXPAYER RIGHTS AND TAX ADMINISTRATION

EXTEND TIME FOR CONTESTING IRS LEVY

Current Law The IRS may levy on all property and rights to property belonging to any person who is liable to pay any tax and neglects or refuses to pay such tax. In addition, any property that is attached by a federal tax lien or by any other tax lien under the collection provisions of the Internal Revenue Code is subject to levy. Thus, the IRS can levy on property subject to a federal tax lien, even if the property has been sold or transferred by the taxpayer.

If the IRS has wrongfully levied against property, the IRS has the authority to return the property. The IRS can return the levied property at any time, provided that the IRS still has possession of the property. If the

levied property is money or property which has been sold, the IRS can only return an amount equal to the levied money or the sale proceeds within nine months after the date of the levy.

If the IRS has wrongfully levied against property, the IRS has the authority to return the property. The IRS can return the levied property at any time, provided that the IRS still has possession of the property. If the levied property is money or property which has been sold, the IRS can only return an amount equal to the levied money or the sale proceeds within nine months after the date of the levy.

New Law The New Law gives the IRS two years, instead of nine months, to return the monetary proceeds from the sale of property that has been wrongfully levied upon.

Additionally, the New Law provides that any person who claims an interest in levied property that was wrongfully levied upon has two years, instead of nine months, to bring a civil action for wrongful levy.

Is effective with respect to (1) levies made after the date of enactment, and (2) levies made on or before the date of enactment provided that the nine-month period has not expired as of the date of enactment.

V.

HEALTH CARE

A. ELIMINATION OF SHARED RESPONSIBILITY PAYMENT FOR INDIVIDUAL FAILING TO MAINTAIN MINIMUM ESSENTIAL COVERAGE Current Law Individuals are personally responsible for obtaining for themselves and their dependents health care coverage on a monthly basis that meets the requirements for minimum essential coverage. A tax penalty applies unless the individual purchases health insurance or is exempt from the penalty.

New Law The New Law reduces the amount of the individual shared responsibility payment enacted as part of the Affordable Care Act to zero.

Is effective for months beginning after December 31, 2018.

VI. ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAXES A.

Estate and Gift Taxes

Current Law

There is an integrated estate and gift tax. Estate and gift taxes are imposed at a rate of 40%. There is an annual exclusion of $10,000 per donee for lifetime gifts, indexed for inflation ($14,000 for 2017). The first $5 million of transferred property is exempt from estate and gift taxes. The $5 million unified credit basic exclusion amount is indexed for inflation ($5.49 million for 2017). Although an estate tax marital deduction generally is denied for property passing to a surviving spouse who is not a citizen of the United States, an exception is provided for property passing to a qualified domestic trust for such spouse. Estate taxes are imposed on lifetime distributions from a qualified domestic trust to the non-citizen surviving spouse and on the value of the property remaining in the trust at such spouse's death. A 40% tax is imposed on certain gifts and bequests received from former U.S. citizens or former long-term U.S. residents classified as “covered expatriates.” Beneficiaries of an estate take an income tax basis in property received equal to its fair-market value at the time of the decedent's death (sometimes referred to as a “stepped-up” basis).

Donees generally take a carryover basis when property is received by gift (that is, donees generally take the donor's basis).

New Law The New Law increases the estate and gift tax unified credit basic exclusion amount to $10,000,000 (subject to inflation adjustments) for taxable years beginning after December 31, 2017, and before January 1, 2026.

Is effective for decedents dying and gifts made after December 31, 2017.

B.

GENERATION-SKIPPING TRANSFER TAX

There is a generation-skipping transfer tax of 40% for property that is transferred beyond one generation, whether by gift or bequest. The first $5 million of transferred property is exempt from generation-skipping transfer taxes. The $5 million GST exclusion amount is indexed for inflation ($5.49 million for 2017).

New Law The New Law also increases the GST exemption amount to $10,000,000 (subject to inflation adjustments) for the same taxable years.

Is effective for decedents dying and gifts made after December 31, 2017.

VII. A.

ALTERNATIVE MINIMUM TAX

CORPORATE ALTERNATIVE MINIMUM TAX

Current Law Taxpayers must compute their income for purposes of the regular income tax, then recompute their income for purposes of the alternative minimum tax (AMT). Corporations with average gross receipts equal to or in

excess of $7.5 million over the preceding three tax years are subject to the alternative minimum tax (AMT).

A taxpayer's tax liability is the greater of their regular tax liability or their AMT liability.

Corporations, and in some cases noncorporate taxpayers, receive a credit for AMT paid (the prior-year minimum tax credit), which they can carry forward and claim against regular tax liability in future tax years, to the extent such liability exceeds AMT in a particular year.

New Law The New Law repeals the corporate alternative minimum tax for tax years beginning after December 31, 2017. Under the New Law, if a corporate taxpayer has prior-year minimum tax credit carryforwards, the taxpayer is able to use the credit carryforwards to offset the regular tax liability for any tax year. In addition, the taxpayer is able to claim a refund of 50% of the remaining credits (to the extent the credits exceed the regular tax liability for the year) in tax years beginning in 2018, 2019, and 2020, and is able to claim a refund of all remaining credits in the tax year beginning in 2021. The AMT refundable credit amount is prorated for short tax years. The AMT credit limitation is increased by the AMT refundable credit amount in tax years 2018 through 2021.

B.

INDIVIDUAL ALTERNATIVE MINIMUM TAX

Current Law Taxpayers must compute their income for purposes of the regular income tax, then recompute their income for purposes of the alternative minimum tax (AMT).

For individuals, estates and trusts, the AMT has a 26% bracket and a 28% bracket. The corporate AMT rate is 20%. In computing the AMT, only alternative minimum taxable income (AMTI) above an AMT exemption amount is taken into account, but AMTI represents a broader base of income than regular taxable income because many deductions and tax preferences are disallowed for AMT purposes.

New Law The New Law increases the exemption amount threshold to $109,400 for married taxpayers filing a joint return (half this amount for married taxpayers filing a separate return), and $70,300 for all other taxpayers (other than estates and trusts) for tax years beginning after December 31, 2017, and beginning before January 1, 2026.

The New Law also increases the phase-out threshold to $1,000,000 for married taxpayers filing a joint return, and $500,000 for all other taxpayers (other than estates and trusts) beginning after December 31, 2017, and beginning before January 1, 2026.

Both the exemption threshold amount and the phase-out threshold amounts are indexed for inflation.

VIII.

BUSINESS TAX REFORM

A.

TAX RATES AND RELATED REFORMS

1.

Reduction in corporate tax rate

Current Law A corporation's regular tax liability is determined by applying the following rates: 15% for $0-$50,000 of taxable income, 25% for $50,001-$75,000 of taxable income, 34% for $75,001-$10,000,000 of taxable income and 35% for excess of $10,000,000 of taxable income. The 15% and 25% rates are phased out for corporations with taxable income between $100,000 and $335,000 and the 34% rate is gradually phased out for corporations with taxable income between $15,000,00 and $18,333,333. Additionally, personal service corporations are not entitled to use the graduated corporate rates below the 35% rate.

New Law The New Law sets the corporate tax rate at 21% effective for taxable years beginning after December 31, 2017, and provides clarification on the normalization of excess tax reserves resulting from the reduction of corporate income tax rates.

Is effective for taxable years beginning after December 31, 2017.

2.

Reduction of dividends received deduction to reflect lower corporate income tax rates

Current Law Corporations which receive dividends from other taxable corporations are generally allowed a deduction equal to 70% of the dividends received. In the case of any dividend received from a 20%-owned corporation, the amount of the deduction is equal to 80% of the dividend received.

For this purpose, certain preferred stock is not taken into account. If a dividend is received from a corporation that is a member of the same affiliated group, a corporation is generally allowed a deduction equal to 100% of the dividend received.

New Law The New Law clarifies that the 80% dividends received deduction is reduced to 65% and the 70% dividends received deduction is reduced to 50%.

Is effective for taxable years beginning after December 31, 2017.

B.

PASS-THROUGH ENTITIES

1.

Pass-through business income of individuals

Current Law Businesses organized as sole proprietorships, partnerships, limited liability companies and S corporations are generally treated as pass-through entities subject to tax at the individual owner or shareholder level rather than the entity level. Net income earned by owners of these entities is reported on their individual income tax returns and is subject to ordinary income tax rates, up to the top individual marginal rate of 39.6%.

For purposes of the self-employment tax, net earnings from self-employment is defined as gross income less deductions from a trade or business carried on by an individual, including the distributive share of income or loss from a trade or business of any partnership in which the individual is a partner. The distributive share of a limited partner is generally excluded, however. An S corporation shareholder's pro rata share of S corporation income is not subject to self-employment tax.

The New Law a.

20% Deduction

(1) The New Law allows individual taxpayers to deduct 20% of the qualified business income (QBI) from a partnership, S corporation, or sole proprietorship, as well as 20% of the total qualified REIT dividends and qualified publicly traded partnership income. Special rules apply to specified agricultural and horticultural cooperatives.

(2) A limitation based on W-2 wages paid is phased in above a threshold amount of taxable income. A disallowance of the deduction with respect to specified service trades or businesses is also phased in above the threshold amount of taxable income.

(3) The deduction is available to both itemizers and non-itemizers. The deduction applies to reduce taxable income and is not allowed in computing adjusted gross income. b.

Determination of Taxpayer's Deduction

The taxpayer's deduction for the tax year is equal to the sum of (1) the lesser of (a) the taxpayer's combined qualified business income amount, or (b) an amount equal to 20% of the excess of the taxpayer's taxable income over any net capital gain and qualified cooperative dividends, plus (2) the lesser of (a) 20% of qualified cooperative dividends, or (b) taxable income (reduced by net capital gain). The taxpayer's deduction may not exceed the taxpayer's taxable income (reduced by net capital gain) for the tax year. c.

Combined Qualified Business Income Amount

The taxpayer's combined qualified business income amount for the tax year is (1) the sum of the deductible QBI amounts determined for each qualified trade or business carried on by the taxpayer, plus (2) 20% of the taxpayer's qualified REIT dividends and qualified publicly traded partnership income. The deductible QBI amount for each qualified trade or business generally is equal to the lesser of (1) 20% of the taxpayer's QBI with respect to the trade or business, or (2) the W-2 wage limitation. d.

Qualified Business Income (QBI)

QBI is defined as the net amount of qualified items of income, gain, deduction, and loss with respect to the qualified trade or business of the taxpayer. A qualified trade or business is defined as any trade or business other than a specified service trade or business or the trade or business of being an employee. Items of income, gain, deduction, and loss are qualified items only to the extent (1) they are included or allowed in the determination of the taxpayer's taxable income for the tax year, and (2) they are effectively connected with the conduct of a trade or business within the United States or Puerto Rico. QBI does not include specified investment-related items of income, gain, deduction, and loss.

QBI also does not include (1) any amount paid by an S corporation that is treated as reasonable compensation of a taxpayer, (2) any guaranteed payment by a partnership to a taxpayer for services rendered with respect to the trade or business, or (3) any amount paid by a partnership to a taxpayer acting other than in his or her capacity as a partner for services.

If the net amount of QBI from all qualified trades or businesses during the tax year is a loss, it is carried forward as a loss from a qualified trade or business in the next tax year. Any deduction of the taxpayer allowed in a subsequent year is reduced (but not below zero) by 20% of any such carryover qualified business loss. e.

W-2 Wage Limitation

(1)

The Limitation

The W-2 wage limitation is equal to the greater of (1) 50% of the W-2 wages with respect to the trade or business, or (2) the sum of (a) 25% of the W-2 wages with respect to the trade or business, plus (b) 2.5% of the unadjusted basis (immediately after acquisition) of all qualified property. However, if the taxpayer's taxable income is below an applicable threshold amount, the W-2 wage limitation does not apply to limit the taxpayer's deduction. The W-2 wage limitation phases in for a taxpayer with taxable income in excess of the applicable threshold amount.

(2)

W-2 Wages Defined

W-2 wages are defined as the total wages subject to wage withholding, elective deferrals, and deferred compensation paid by the qualified trade or business with respect to employment of its employees during the calendar year ending during the tax year of the taxpayer. W-2 wages do not include (1) any amount that is not properly allocable to the QBI as a qualified item of deduction, and (2) any amount that was not

properly included in a return filed with the Social Security Administration on or before the 60th day after the due date (including extensions) for filing such return.

(3)

Qualified Property

“Qualified property” is defined as tangible property of a character subject to depreciation (1) that is held by, and available for use in, the qualified trade or business at the end of the tax year, (2) that is used in the production of QBI, and (3) for which the depreciable period has not ended before the end of the tax year.

The depreciable period with respect to qualified property is defined as the period beginning on the date the property is first placed in service by the taxpayer and ending on the later of (1) the date 10 years after that date, or (2) the last day of the last full year in the applicable recovery period that applies to the property under §168 (without regard to §168(g)).

(4)

Specified Service Trade or Business Exclusion

Generally, a specified service trade or business is excluded from the definition of qualified trade or business. Therefore, no deduction is generally allowed with respect to the income of a specified service trade or business. However, if a taxpayer's taxable income is below an applicable threshold amount, the exclusion does not apply, and the taxpayer is allowed a deduction with respect to the income of a specified service trade or business. The specified service trade or business exclusion phases in for a taxpayer with taxable income in excess of the applicable threshold amount.

A specified service trade or business is defined as any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of one or more of its employees or owners, or which involves the performance of services that consist of investing and investment management, trading, or dealing in securities, partnership interests, or commodities.

(5)

Threshold Amounts and Phase-in

For purposes of the W-2 wage limitation and the specified service trade or business exclusion, the threshold amounts are $315,000 for joint filers and $157,500 for all other taxpayers (indexed for inflation).

The W-2 wage limitation and the specified service trade or business exclusion are phased in for taxpayers with taxable income in excess of the applicable threshold amount. They are fully phased in for joint filers with taxable income in excess the threshold amount (currently $315,000) plus $100,000, and for other taxpayers with taxable income in excess of the threshold amount (currently $157,500) plus $50,000.

(6)

Qualified REIT Dividends and Qualified Publicly Traded Partnership Income

A deduction is allowed for 20% of a taxpayer's total amount of qualified REIT dividends and qualified publicly traded partnership income. Qualified REIT dividends are generally defined as any dividends

received from a REIT other than any portion of a dividend received from a REIT that is a capital gain dividend or a qualified dividend. Qualified publicly traded partnership income is generally defined as the sum of (1) the net amount of the taxpayer's allocable share of each qualified item of income, gain, deduction, and loss from a publicly traded partnership not treated as a corporation, and (2) gain recognized by the taxpayer on disposition of its interest in the publicly traded partnership that is treated as ordinary income.

(7)

Specified Agricultural or Horticultural Cooperatives

A deduction is allowed to any specified agricultural or horticultural cooperative equal to the lesser of (1) 20% of the cooperative's taxable income for the tax year, or (2) the greater of (a) 50% of the W-2 wages paid by the cooperative with respect to its trade or business, or (b) the sum of (i) 25% of the W-2 wages paid by the cooperative with respect to its trade or business, plus (ii) 2.5% of the unadjusted basis (immediately after acquisition) of qualified property of the cooperative. A specified agricultural or horticultural cooperative is defined as an organization to which subchapter T applies that is engaged in (1) the manufacturing, production, growth, or extraction, in whole or significant part, of any agricultural or horticultural product, (2) the marketing of agricultural or horticultural products that its patrons have so manufactured, produced, grown, or extracted, or (3) the provision of supplies, equipment, or services to farmers or organizations described in (1) and (2).

(8)

Application to Partnerships and S corporations

In the case of a partnership or S corporation, the provision applies at the partner or shareholder level. Each partner takes into account the partner's allocable share of each qualified item of income, gain, deduction, and loss and is treated as having W-2 wages for the tax year equal to the partner's allocable share of W-2 wages of the partnership. Each shareholder of an S corporation takes into account the shareholder's pro rata share of each qualified item of income, gain, deduction, and loss and is treated as having W-2 wages for the tax year equal to the shareholder's pro rata share of W-2 wages of the S corporation.

(9)

Application to Trusts and Estates

Trusts and estates are eligible for the deduction. For purposes of the W-2 wage limitation, rules similar to the rules in present law ยง199 (as in effect on December 1, 2017) apply for apportioning any W-2 wages and unadjusted basis of qualified property between fiduciaries and beneficiaries.

Effective and Expiration Dates The provision is effective for tax years beginning after December 31, 2017.

The provision terminates for tax years beginning after December 31, 2025.

2.

Technical termination of partnerships

Current Law

A partnership may experience a technical termination if 50% or more of the total interests in partnership capital and profits is sold or exchanged within a 12-month period. The partnership's existence does not necessarily end upon a technical termination. Generally, however, the partnership's taxable year closes, partnership-level elections cease to apply, and partnership depreciation recovery periods restart.

New Law The New Law repeals the technical termination rule for partnerships where more than 50% of the total capital and profits interests are sold or exchanged.

The provision is effective for partnership taxable years beginning after December 31, 2017.

3.

Carried interest

Current Law An owner of a partnership interest who receives payments in connection with the performance of services is entitled to long-term gain treatment upon the sale of partnership interests held for greater than one year.

This is typically known as a carried interest. [I.R.C. §1222] New Law An owner of a partnership interest who receives payments in connection with the performance of services is entitled to long-term gain treatment upon the sale of partnership interests held for greater than one year.

This is typically known as a carried interest.

For tax years beginning after Dec. 31, 2017, a three-year holding period applies in the case of certain net long term capital gain with respect to any applicable partnership interest held by the taxpayer, notwithstanding the rules of §83 or any election in effect under §83.

Treats as short-term capital gain taxed at ordinary income rates the amount of the taxpayer’s net long term capital gain with respect to an applicable partnership interest for the tax year that exceeds the amount of such gain calculated as if a three-year (not one year) holding period applies. In making this calculation, the provision takes account of long=term capital losses calculated as if a three-year holding period applies.

4.

Tax gain on the sale of a partnership interest on look-through basis

Current Law A foreign person engaged in a trade or business in the United States is taxed on income that is “effectively connected” with the conduct of that trade or business (“effectively connected gain or loss”). Partners in a partnership are engaged in the conduct of a trade or business within the United States if the partnership is so engaged.

The extent to which the income, gain, or loss is derived from assets used in or held for use in the conduct of the U.S. trade or business and whether the activities of the trade or business were a material factor in the realization of the income, gain, or loss (the “asset use” and “business activities” tests) are factors considered in determining whether income is effectively connected. In determining whether the asset use or business activities tests are met, due regard is given to whether such assets or such income, gain, or loss were accounted for through such trade or business.

Special rules apply to treat gain or loss from disposition of U.S. real property interests as effectively connected with the conduct of a U.S. trade or business. Consideration received by the nonresident alien or foreign corporation for all or part of its interest in a partnership that is attributable to a U.S. real property interest is considered to be received from the sale or exchange in the United States of such property. Gain attributable to sales of U.S. real property interests may be subject to withholding tax of 10% of the amount realized on the transfer.

New Law Effective for sales and exchanges after Nov. 27, 2017, gain or loss from the sale or exchange of an interest in a partnership engaged in a U.S. trade or business is treated as effectively connected with a U.S. trade or business to the extent that the transferor has had effectively connected gain or loss had the partnership sold all of its assets at fair market value as of the date of the sale or exchange. Any gain or loss from the hypothetical asset sale by the partnership is allocated to interests in the partnership in the same manner as non-separately stated income and loss.

Effective for sales and exchanges after Dec. 31, 2017, the transferee is required to withhold 10% of the amount realized.

5.

Substantial built-in loss in the case of transfer of partnership interest

Current Law A partnership does not adjust the basis of partnership property following the transfer of a partnership interest unless the partnership has made a one-time §754 election for basis adjustments or the partnership has a substantial built-in loss immediately after the transfer.

If an election is in effect or if the partnership has a substantial built-in loss immediately after the transfer, adjustments are made with respect to the transferee partner to account for the difference between the transferee partner's proportionate share of the adjusted basis of the partnership property and the transferee's basis in its partnership interest.

A substantial built-in loss exists if the partnership's adjusted basis in its property exceeds by more than $250,000 the fair market value of the partnership property. Certain securitization partnerships and electing investment partnerships are not treated as having a substantial built-in loss in certain instances, and thus

are not required to make basis adjustments to partnership property. For electing investment partnerships, in lieu of the partnership basis adjustments, a partner-level loss limitation rule applies.

New Law The New Law modifies the definition of a substantial built-in loss for §743(d) purposes, affecting transfers of partnership interests. In addition to the present-law definition, a substantial built-in loss also existd if the transferee is allocated a net loss in excess of $250,000 upon a hypothetical disposition by the partnership of all partnership's assets in a fully taxable transaction for cash equal to the assets’ fair market value, immediately after the transfer of the partnership interest.

Is effective for transfers of partnership interests after December 31, 2017.

6.

Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner's share of loss Current Law A partner's distributive share of partnership loss is limited to the adjusted basis of the partner's interest in the partnership taxable year in which the loss occurred. However, under current regulations, foreign taxes paid, and charitable contributions made are not taken into account in applying the basis limitation on partner losses.

New Law The New Law modifies the basis limitation rules on partner losses to apply to charitable contributions and foreign taxes. The New Law clarifies that the basis limitation on partner losses does not apply to the excess of fair market value over adjusted basis on charitable contributions of appreciated property.

Is effective for partnership taxable years beginning after December 31, 2017.

C.

ELECTING SMALL BUSINESS TRUSTS

1.

Qualifying beneficiaries of an electing small business trust

Current Law An electing small business trust (ESBT) is an eligible shareholder of an S corporation. Eligible beneficiaries of ESBTs are individuals, estates, and certain charitable organizations which are eligible to directly hold S corporation stock. Nonresident alien individuals may not be shareholders or potential current beneficiaries of an ESBT. New Law

Under the New Law, a nonresident alien individual may be a potential current beneficiary of an ESBT. The provision does not permit a nonresident alien individual to be an S corporation shareholder.

Takes effect on January 1, 2018.

2.

Charitable contribution deduction for electing small business trusts

Current Law An electing small business trust (“ESBT”) may be a shareholder of an S corporation. The portion of an ESBT that consists of the stock of an S corporation is treated as a separate trust and generally is taxed on its share of the S corporation's income at the highest rate of tax imposed on individuals. Because an ESBT is a trust, the deduction for charitable contributions applicable to trusts, rather than the deduction applicable to individuals, applies to the trust.

Generally, a trust is allowed a charitable contribution deduction for amounts of gross income, without limitation, which pursuant to the terms of the governing instrument are paid for a charitable purpose. No carryover of excess contributions is allowed. An individual is allowed a charitable contribution deduction limited to certain percentages of adjusted gross income generally with a five-year carryforward of amounts in excess of this limitation.

New Law The New Law provides that the charitable contribution deductions of an ESBT is governed by the rules applicable to individuals. As a result, the percentage limitations and carryforward provisions that apply to individuals will also apply to the portion of an ESBT holding S corporation stock.

Is effective for taxable years beginning after December 31, 2017.

D.

S CORPORATION CONVERSIONS TO C CORPORATIONS

Current Law Distributions from a terminated S corporation are treated as paid from its accumulated adjustment account if made during the post-termination transition period which ends on the later of one year from the last day the corporation was an S corporation, or the due date for filing the last return of the S corporation (including extensions).

New Law The New Law extends the period for which distributions from a terminated S corporation to be treated as paid from its accumulated adjustment account and from its earnings and profits on a pro-rata basis.

Adjustments under §481(a) due to the termination are accounted for ratably over a 6-year period.

Is effective for S corporations which revoke their S corporation elections during the 2-year period beginning on the date of enactment and have the same owners on both the date of enactment and the revocation date.

IX. A. -

ACCOUNTING METHODS

TAXABLE YEAR OF INCLUSION

Current Law Taxpayer may defer income related to advance payments when the taxpayer receives payment before the taxpayer provides goods or services to its customer. The exceptions allow tax deferral to mirror financial accounting deferral.

To compute original issue discount (OID) and the portion of OID allocable to a period, the stated redemption price at maturity and the term must be known. Issuers of OID instruments accrue and deduct the amount of OID as interest expense in the same manner as the holder.

If a taxpayer holds a pool of credit card receivables that require interest to be paid only if the borrowers do not pay their accounts by a specified date (“grace-period interest”), the taxpayer is required to accrue interest or OID on such pool based upon a reasonable assumption regarding the timing of the payments of the accounts in the pool. Under these rules, certain amounts (other than grace period interest) related to credit card transactions, such as late-payment fees, cash-advance fees, and interchange fees, have been determined to create OID or increase the amount of OID on the pool of credit card receivables to which the amounts relate.

New Law The New Law revises the income recognition rules to provide that a taxpayer is treated as meeting the all events test with respect to an item of gross income no later than the tax year in which that item is taken into account as revenue in an applicable financial statement or other financial statement specified by the IRS. An exception applies for long-term contract income to which §460.

The New Law also allows taxpayers to defer the inclusion of income associated with certain advance payments to the end of the tax year following the tax year of receipt if such income also is deferred for financial statement purposes, codifying Rev. Proc. 2004-34.

An exception applies for any item of gross income for which a special method of accounting is used (other than the special methods of accounting that apply to bonds and other debt instruments under §1271§1288). Thus, taxpayers is required to apply the revenue recognition rules under §451 before applying the rules under §1271-§1288 (including the OID rules under §1272).

An exception applies for any item of gross income for which a special method of accounting is used (other than the special methods of accounting that apply to bonds and other debt instruments under § 1271§ 1288). Thus, taxpayers is required to apply the revenue recognition rules under §451 before applying the rules under §1271-§1288 (including the OID rules under §1272). An exception applies to any item of gross income in connection with a mortgage servicing contract.

Is effective for taxable years beginning after December 31, 2017. However, in the case of income from a debt instrument having original issue discount, the New Law is effective for taxable years beginning after December 31, 2018, and the period for taking into account any adjustments under §481 by reason of a qualified change in method of accounting is six years.

B.

SMALL BUSINESS ACCOUNTING METHOD USE OF GROSS RECEIPTS METHOD

Current Law Corporations and partnerships with corporate partners are prohibited from using the cash method of accounting unless they have average gross receipts of less than $5 million for the prior three taxable years.

Certain farming entities are prohibited from using the cash method if average gross receipts exceed $1 million. Family farm corporations are permitted to use the cash method if average gross receipts do not exceed $25 million. Qualified personal service corporations are generally permitted to use the cash method regardless of gross receipts.

New Law The New Law increases the $5 million average gross receipts threshold for corporations and partnerships with corporate partners that are not allowed to use the cash method of accounting to $25 million (indexed for inflation) and extends the cash method of accounting to certain farming entities, subject to the threshold amount. Qualified personal service corporations will still be permitted to use the cash method regardless of gross receipts. The requirement that such businesses satisfy the requirement for all prior years is repealed.

The New Law provides for automatic consent for accounting method changes made by taxpayers meeting the increased average gross receipts test. Such taxpayers are subject to adjustments under §481.

Is generally effective for taxable years beginning after December 31, 2017.

C.

UNIFORM CAPITALIZATION OF CERTAIN EXPENSES

Current Law Under the UNICAP rules, businesses must either include in inventory or capitalize certain direct and indirect costs related to real or tangible property, whether manufactured or acquired for resale. Businesses with less than $10 million in average gross receipts are exempt from this requirement with respect to

personal property acquired for resale. There are also several industry or item specific exemptions from the UNICAP rules.

New Law Under the New Law, any producer or reseller with average gross receipts of less than $25 million is exempt from the UNICAP rules. Exemptions from the UNICAP rules which are not tied to a gross receipts test will be retained.

The New Law provides for automatic consent for accounting method changes made by taxpayers meeting the increased average gross receipts test. Such taxpayers is subject to adjustments under ยง481.

Is generally effective for taxable years beginning after December 31, 2017.

D.

INVENTORY ACCOUNTING RULES FOR SMALL BUSINESSES

Current Law Businesses where the production, purchase, or sale of merchandise is a material income-producing factor must account for inventories and must also use the accrual method as their overall method of accounting.

Taxpayers who have average gross receipts of less than $10 million may account for inventory as materials and supplies that are not incidental and use the cash method as their overall method of accounting; corporations and partnerships with corporate partners remain limited to the $5 million average gross receipts test. Certain industries are still required to account for inventories if their average gross receipts exceed $1 million.

New Law The $25 million average gross receipts test (see above) also applies to exempt the taxpayer from the requirement to account for inventories, permitting such taxpayers to either treat inventories as materials and supplies that are not incidental or conform to the taxpayer's financial accounting treatment of inventories.

The New Law provides for automatic consent for accounting method changes made by taxpayers meeting the increased average gross receipts test. Such taxpayers are subject to adjustments under ยง481.

Is generally effective for taxable years beginning after December 31, 2017.

E. GROSS RECEIPTS TEST FOR CONSTRUCTION CONTRACT EXCEPTION TO PERCENTAGE OF COMPLETION METHOD Current Law

Certain small business with long-term contracts to be completed within two years are exempt from the requirement to use the percentage-of-completion method of accounting if their average gross receipts exceed $10 million and may instead use the taxpayer favorable completed contract method or other applicable methods.

New Law The New Law increases the $10 million average gross receipts exception to the requirement to use the percentage-of-completion accounting method for long-term contracts to be completed within two years to $25 million, and businesses that meet such exception is permitted to use the completed-contract method (or any other permissible exempt contract method).

Is generally effective for contracts entered into after December 31, 2017, in taxable years ending after such date.

F. SMALL BUSINESS EXEMPTION FROM LIMITATION ON DEDUCTION OF BUSINESS INTEREST Current Law Business interest is generally allowed as a deduction in the tax year in which the interest is paid or accrued, subject to a number of limitations. The New Law subjects every business, regardless of its form, to a disallowance of a deduction for net interest expense in excess of 30% of the business's adjusted taxable income. The net interest expense disallowance is determined at the tax filer level—for example, at the partnership level instead of the partner level.

New Law The New Law limits the deduction for net interest expense incurred by a business to the sum of business interest income, 30% of adjusted taxable income, and floor plan financing interest. Businesses with average annual gross receipts of $25 million or less are exempt from the limit. Disallowed interest may be carried forward indefinitely. The New Law allows real property trades or businesses that use the ADS and farming businesses to elect not to be subject to the business interest deduction limit. The interest deduction limit does not apply to certain regulated public utilities. These amendments apply to tax years beginning after Dec. 31, 2017.

Is effective for taxable years beginning after December 31, 2017.

X. EXPENSING, COST RECOVERY A.

SECTION 179 EXPENSING

Current Law

Businesses may immediately expense up to $500,000 (adjusted for inflation - $510,000 for 2017) of the cost of any §179 property placed in service each tax year. If the business places in service more than $2 million (adjusted for inflation - $2,030,000 for 2017) of §179 property in a tax year, then the amount available for immediate expensing is reduced by the amount by which the cost of such property exceeds $2 million (as adjusted). Further limitations on the ability to immediately expense this amount may apply based on the business's taxable income for the year.

Section 179 property under includes the following types of property, if they are acquired by purchase for use in the active conduct of a trade or business: tangible MACRS §1245 property, certain off-the-shelf computer software, qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. It generally does not include property used outside of the United States.

New Law The New Law increases the amount that a taxpayer may expense under §179 from $500,000 to $1,000,000 and increases the phase-out threshold from $2,000,000 to $2,500,000.

The New Law also expands the definition of §179 property to include certain depreciable tangible personal property used predominantly to furnish lodging.

The New Law expands the definition of qualified real property to include investments to nonresidential real property placed in service after the date such property was first placed in service including the following: roofs, heating, ventilation, and air-conditioning property, fire protection and alarm systems, and security systems.

Is effective for taxable years beginning after December 31, 2017.

B.

COST RECOVERY –

1.

Bonus depreciation

Current Law Taxpayers receive an additional depreciation deduction in the year in which it places certain “qualified property” in service (bonus depreciation), effective for property placed in service through 2019 (2020 for certain qualified property with a longer production period). The amount of bonus depreciation is 50% of the cost of such property placed in service during 2017 and phases down to 40% in 2018 and 30% in 2019.

Qualified property that is eligible for bonus depreciation is tangible personal property with a recovery period of 20 years or less under the modified accelerated cost recovery system (MACRS), certain off-the-shelf computer software, water utility property, and qualified improvement property.

“Specified plants” (certain trees, vines, and plants bearing fruit or nuts) are also eligible for bonus depreciation, when planted or grafted rather than when placed in service.

Finally, to be eligible for bonus depreciation, the original use of the property must begin with the taxpayer.

Taxpayers may elect out of bonus depreciation. Taxpayers can elect to accelerate the use of their AMT credits in lieu of deducting bonus depreciation.

The costs of any qualified film or television production, and the costs of any qualified live theatrical production, are allowed as a deduction (subject to the dollar limitation described below) if the taxpayer so elects, even if it is otherwise capitalized.

Taxpayers receive an additional depreciation deduction in the year in which it places certain “qualified property� in service (bonus depreciation), effective for property placed in service through 2019 (2020 for certain qualified property with a longer production period). The amount of bonus depreciation is 50% of the cost of such property placed in service during 2017 and phases down to 40% in 2018 and 30% in 2019.

Qualified property that is eligible for bonus depreciation is tangible personal property with a recovery period of 20 years or less under the modified accelerated cost recovery system (MACRS), certain off-the-shelf computer software, water utility property, and qualified improvement property.

New Law The New Law alters the bonus depreciation regime. The New Law initially allows full expensing for property placed in service after September 27, 2017, but begins to phase down the percent that may be expensed for property placed in service after January 1, 2023, as follows: For property placed in service after September 27, 2017, and before January 1, 2023, 100% expensing.

For property placed in service after December 31, 2022, and before January 1, 2024, 80% expensing. For property placed in service after December 31, 2023, and before January 1, 2025, 60% expensing. For property placed in service after December 31, 2024, and before January 1, 2026, 40% expensing. For property placed in service after December 31, 2025, and before January 1, 2027, 20% expensing.

For property with longer production periods placed in service after Sept. 27, 2017, and before January 1, 2024, 100% expensing. For property place in service after December 31, 2023, and before January 1, 2025, 80% expensing. For property place in service after December 31, 2024, and before January 1, 2026, 60% expensing. For property placed in service after December 31, 2025, and before January 1, 2027, 40% expensing. For property placed in service after December 31, 2026, and before January 1, 2028, 20% expensing.

Alternatively, the New Law allows taxpayers to elect 50% in lieu of 100% expensing for qualified property placed in service during the first tax year beginning after September 27, 2017.

The Current Law phase-down bonus depreciation percentage still applies to qualified property acquired by the taxpayer before September 28, 2017, and placed in service by the taxpayer after September 27, 2017 as well as the present-law phase-down of the §280F increase amount in the limitation on the depreciation

deductions allowed with respect to certain passenger automobiles acquired before September 28, 2017, and placed service after September 27, 2017.

The definition of qualified property is expanded to allow used property acquired by the taxpayer to be eligible for bonus depreciation, provided the property was not used by the taxpayer before the taxpayer acquired it. The definition of qualified property is also amended to exclude property used in a real estate trade or business and certain regulated public utility property.

The definition of qualified property is expanded to include qualified film, television, and live theatrical productions initially released, broadcast, or staged live after September 27, 2017. A production is considered placed in service at the time of initial release, broadcast, or live staged performance (i.e., at the time of the first commercial exhibition, broadcast, or live staged performance of a production to an audience).

The taxpayer's election to claim prior year minimum tax credits in lieu of bonus deprecation is repealed.

2.

Depreciation limitations on luxury automobiles and personal use property

Current Law The annual cost recovery deduction for certain passenger automobiles is limited. This is commonly referred to as the luxury automobile depreciation limitation. For passenger automobiles placed in service in 2017 for which the additional first-year depreciation deduction under ยง168(k) is not claimed, a taxpayer may depreciate a maximum amount of $3,160 for the year in which the vehicle is placed in service, $5,100 for the second year, $3,050 for the third year, and $1,875 for the fourth and later years in the recovery period.

This limit is indexed for inflation and applies to the aggregate deduction for depreciation and ยง179 expensing.

Passenger automobiles eligible for the additional first-year depreciation allowance in 2017 may depreciate an additional $8,000 in the first year the vehicle is placed in service. For this purpose, passenger automobiles include any four-wheeled vehicles manufactured primarily for use on public streets, roads, and highways, and which are rated at 6,000 pounds unloaded gross vehicle weight or less. The increased depreciation limit also applies to a truck (including a sport utility vehicle) or van rated at 6,000 pounds or less.

Special rules apply to listed property. Listed property generally includes passenger automobiles, other property used as a means of transportation, property generally used for entertainment, recreation, or amusement, any computer or peripheral equipment, and any other property of a type specified in Treasury regulations. First, if during the year in which the property is placed in service, the use of the property for trade or business purposes does not exceed 50% of the total use of the property, then the depreciation deduction for that property is determined under the alternative depreciation system. This requires the use of the straight-line method, and a recovery period equal to the class life of the property. Second, for those

individuals who lease or own listed property and use it in the connection with the performance of services as an employee, no depreciation deduction, expensing allowance, or deduction for lease payments is available unless the use of the property is for the convenience of the employer and required as a condition of employment.

With respect to listed property, no deduction is allowed unless the taxpayer can adequately substantiate the expense and business usage of the property. A taxpayer must substantiate every element of each expenditure or use of listed property– typically including the amount of the expenditure and the amount of business or investment use (miles for automobiles), and the total use of the property, the date of the expenditure or use, and the business purposes for the expenditure or use, although the level of substantiation can vary from case to case.

New Law The New Law increases the depreciation limits that apply to listed property. For passenger automobiles placed in service in 2018 and for which the additional first-year depreciation deduction is not claimed, the maximum amount of allowable depreciation is increased to $10,000 for the year in which the vehicle is placed in service, $16,000 for the second year, $9,600 for the third year, and $5,760 for the fourth and later years. The amounts are indexed for inflation for automobiles placed in service after 2018.

The New Law also removes computer or peripheral equipment from the definition of listed property, thus removing such equipment from the heightened substantiation requirements that apply to listed property.

Is effective for property place in service after December 31, 2017.

3.

Depreciation of certain farm property

Current Law Generally, taxpayers must capitalize the cost of property used in a trade or business or held for the production of income and to recover such cost over time through annual deductions for depreciation or amortization. Tangible property is generally depreciated under the modified accelerated cost recovery system (MACRS). The applicable recovery period for an asset is determined in part by the statute and in part by treasury guidance, and the “class life” of an asset is determined by the “type of property,” which in turn dictates the applicable recovery period.

The MACRS recovery periods applicable to most tangible personal property ranges from three to 20 years and generally use the 200% and 150% declining balance methods in calculating depreciation – switching to the straight-line method when it yields a larger depreciation allowance. The recovery period for most nonresidential real property is 39 years, and 27.5 years for residential rental property. Both require the use of the straight-line depreciation method.

Property used in a farming business is assigned various recovery periods in the same manner as other business property. For example, depreciable assets used in agricultural activities like machinery and equipment, grain bins, and fences used in the production of crops, vines, and trees; livestock; the operation of farm dairies, nurseries, green houses, sod farms, mushrooms cellars, cranberry bogs, apiaries, and fur farms; and the performance of agriculture, animal husbandry, and horticultural services, are assigned a recovery period of seven years. But land improvements like drainage facilities, paved lots, and water wells are assigned a 15-year recovery period. New farm machinery or equipment (other than grain bins, cotton ginning assets, fences, and other land improvements) used in a farming business the original use of which commenced with the taxpayer after December 31, 2008, and which was placed in service before January 1, 2010, is assigned a 5-year recovery period.

With some exceptions, any property used in a farming business is subject to the 150% declining balance method.

Certain taxpayers engaged in the business of farming, and who elect to deduct preproductive period expenditures, are required to depreciate all farming assets using the alternative depreciation system (using longer recovery periods and the straight-line method).

New Law The New Law shortens, from seven years to five years, the recovery period for any machinery or equipment used in the farming business (not including grain bins, cotton ginning assets, fences, and other land improvements), the original use of which commences with the taxpayer and is placed in service after December 31, 2017. Additionally, the New Law repeals the requirement that the 150% declining balance method be used to depreciate property used in a farming business (i.e., 3-, 5-, 7-, and 10-year property).

However, under New Law, the 150% declining balance method will still apply to 15-year or 20-year property used in the farming business to which the straight-line method does not apply, and to property for which the taxpayer elects to apply the 150% declining balance method.

Is effective for property placed in service after December 31, 2017, in taxable years beginning after such date.

4.

Applicable recovery period for real property; use of ADS for electing farming businesses

Current Law Taxpayers are generally required to capitalize the cost of property used in a trade or business or held for the production and recover such cost over time through annual deductions for depreciation or amortization.

Tangible property is generally depreciated under the modified accelerated cost recovery system (MACRS).

The applicable recovery period for an asset is determined in part by the statute and in part by treasury guidance, and the “class life” of an asset is determined by the “type of property” which in turn, dictates the recovery period.

The MACRS recovery periods applicable to most tangible personal property range from three to 20 years and generally use the 200% and 150% declining balance methods in calculating depreciation – switching to the straight-line method where it yields a larger depreciation balance in the first year. The recovery period for most nonresidential real property is 39 years, and 27.5 years for residential rental property. Both require the use of the straight-line depreciation method.

Depreciation of an asset begins when the asset is deemed to be placed in service under the applicable convention. Under MACRS, nonresidential real property, residential rental property, and any railroad grading or tunnel bore are generally subject to the mid-month convention, which treats all property placed in service during any month as placed in service on the mid-point of such month. Other property is typically subject to the half-year convention which treats all property placed in service during any taxable year as placed in service on the mid-point of such taxable year. A special mid-quarter convention applies to property placed in service during the last three months of a taxable year.

The recovery period for any addition or improvement to real or personal property begins on the later of, the date on which the addition or improvement is placed in service, or the date on which the property the addition or improvement was made to, is placed in service. MACRS deductions for additions or improvements to any property are computed in the same manner as the deduction for the underlying property is computed if such property were placed in service at the same time as such addition or improvement. Certain improvements to nonresidential real property are eligible for the additional first-year depreciation deduction if the other requirements of §168(k) are met.

Depreciation allowances for improvements made on leased property are determined under MACRS, even if said recovery period assigned to the property is longer than the term of the lease. It does not matter whether the lessor or the lessee places the leasehold improvements in service. If the leasehold improvement constitutes an addition or improvement to nonresidential real property already placed in service, the improvement generally is depreciated using the straight-line method over a 39-year recovery period, beginning in the month the addition or improvement was placed in service (with exceptions for qualified restaurant property, and qualified retail improvement property.

There is an alternative depreciation system (ADS), the use of which is required for tangible property used predominantly outside the United States, certain tax-exempt property, tax-exempt bond financed property, and certain imported property covered by an Executive order. A taxpayer can also elect to use ADS for any class of property for any tax year. Under ADS, all property is depreciated using the straight-line method over recovery periods which are generally equal to the class life of the property. Exceptions apply.

5.

Expensing of certain costs of replanting citrus plants lost by reason of casualty

Current Law Taxpayers are not required under the UNICAP rules to capitalize costs incurred due to the replanting of edible crops following loss or damage due to casualty, so long as the same type of crop lost or damaged is

replanted. The exception to this requirement also applies to costs incurred by a person other than the taxpayer, if: (1) the taxpayer has more than a 50% equity interest, and (2) the other person with a minority equity interest materially participates in the business during the taxable year in which the replanting costs were incurred.

New Law Allows minority co-owners to deduct (rather than capitalize) the replanting costs for citrus plants lost or damaged due to freezing temperatures, disease, droughts, pest, or casualty if: (1) the majority co-owner has an equity interest of not less than 50% in the replanted plants and the minority co-owner holds any part of the remaining equity interest (note that this rule essentially removes the material participation requirement that applies for purposes of the other special rule for minority co-owners contained in §263A(d)(2)(B)); or (2) the minority co-owner acquires all of the majority co-owner’s equity interest in the land on which the loss or damage and replanting occurred. Effective for costs paid or incurred after Dec. 22, 2017, but not later than 10 years from Dec. 22, 2017.

XI. BUSINESS-RELATED EXCLUSIONS, DEDUCTIONS, ETC. A.

LIMITATION ON LOSSES FOR TAXPAYERS OTHER THAN CORPORATIONS

Current Law The passive loss rules, which apply to individuals, estates and trusts, and closely held corporations, limit the deduction of losses from passive trade or business activities of a taxpayer. In addition, the excess farm loss rules, which apply to taxpayers other than C corporations, limit the deduction of excess farm losses of a taxpayer in certain circumstances. An excess farm loss for a tax year is the excess of the aggregate deductions attributable to farming businesses over the sum of (i) the aggregate gross income or gain attributable to farming businesses, and (ii) a threshold amount.

New Law The New Law expands the limitation on excess farm losses to also apply to excess business losses of a taxpayer other than a C corporation for taxable years beginning after December 31, 2017, and before January 1, 2026. An excess business loss of a taxpayer is not allowed as a deduction for the tax year incurred, but could be carried forward and treated as part of the taxpayer's net operating loss carryforward in subsequent tax years.

An excess business loss for a tax year is the excess of the aggregate deductions attributable to trades or businesses of the taxpayer, over the sum of (i) the aggregate gross income or gain attributable to trades or businesses of the taxpayer, and (ii) a threshold amount. The threshold amount is $500,000 for married individuals filing jointly and $250,000 for other individual taxpayers. The threshold amounts are indexed for inflation.

In the case of a partnership or S corporation, the limitation applies at the partner or shareholder level. For this purpose, each partner's or shareholder's share of items of income, gain, deduction, and loss of the partnership or S corporation is taken into account for the tax year of the partnership or S corporation.

Is effective for taxable year beginning after December 31, 2017.

B.

INTEREST

Current Law Business interest generally is deductible in the year in which the interest is paid or accrued.

New Law The New Law limits the deduction for business interest expense to the sum of business interest income plus 30% of the adjusted taxable income of the taxpayer for the taxable year. The limitation applies on a taxpayer level. For affiliated corporations that file a consolidated return, it applies at the consolidated tax return filing level. In the case of any partnership, the limitation applies at the partnership level. Additionally, special rules apply to the determination of adjusted taxable income of each partner of the partnership in order to prevent double counting.

The New Law provides that any interest disallowed as a deduction may be carried forward indefinitely.

At the taxpayer's election, the limitation will not apply to real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business to be treated as a trade or business for purposes of the limitation. Additionally, the limit will not apply to certain regulated public utilities or electric cooperatives, including the furnishing or sale of (1) electrical energy, water, or sewage disposal services, (2) gas or steam through a local distribution system, or (3) transportation of gas or steam by pipeline, provided that the rates for furnishing or sale have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by public service or public utility commission or other similar body of any State or political subdivision thereof. In addition, an electing farming business (as defined in ยง263A(e)(4)) is allowed to elect not to be subject to the limitation.

At the taxpayer's election, the limitation will not apply to real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business to be treated as a trade or business for purposes of the limitation. Additionally, the limit will not apply to certain regulated public utilities and certain electric cooperatives, including the furnishing or sale of (1) electrical energy, water, or sewage disposal services, (2) gas or steam through a local distribution system, or (3) transportation of gas or steam by pipeline, provided that the rates for furnishing or sale have been established or approved by a State or political subdivision thereof, by any agency or instrumentality of the United States, or by public service or public utility commission or other similar body of any State or political subdivision thereof.

The New Law allow a farming business (as defined in ยง263A(e)(4)) to elect not to be subject to the limitation. Such electing farming business is required to use the alternative depreciation system for property with a recovery period of 10 years or more.

The New Law provides that floor plan financing is taken into account in determining the interest limitation.

The New Law also does not include as trades or businesses of new ยง199A(g)(2) specified agricultural or horticultural cooperatives that such elects to be excluded. The New Law modifies the definition of floor plan financing to mean any self-propelled vehicle designed for transporting persons or property on a public street, highway, or road.

For tax years beginning after December 31, 2017, and before January 1, 2022, the New Law provides that adjusted taxable income is computed without regard to deductions allowable for depreciation, amortization, or depletion. Additionally, because the Conference Agreement repeals ยง199 effective December 31, 2017, adjusted taxable income is computed without regard to such deduction.

Is effective for taxable years beginning after December 31, 2017.

The New Law provides an exemption for certain taxpayers that meet the $25 million gross receipts test of ยง448(c). This allows taxpayers with annual gross receipts that do not exceed $25 million for the three-prior taxable-year period to be exempt from the limitation on interest deductibility (see further discussion above).

Is effective for tax years beginning after December 31, 2017.

C.

NET OPERATING LOSS DEDUCTION

Current Law A net operating loss is the amount by which a taxpayer's current-year business deductions exceed its current-year gross income. Net operating losses may not be deducted in the year generated, but may be carried back two years and carried forward 20 years.

New Law The New Law limits the NOL deduction for NOLs arising in tax years beginning after Dec. 31, 2017 to 80% of taxable income (computed without regard to the NOL deduction), and provides that amounts carried over to later tax years are adjusted to take into account this limitation. The New Law also eliminates NOL carrybacks and allows unused NOLs to be carried forward indefinitely, except for farming NOLs and NOLs of property and casualty insurance companies, both of which is permitted a 2-year carryback and a 20-year carryforward. This amendment applies to NOLs arising in tax years ending after Dec. 31, 2017.

The change to limit the NOL deduction applies to losses arising in tax years after December 31, 2017.

D.

LIKE-KIND EXCHANGES OF REAL PROPERTY

Current Law No gain or loss is recognized to the extent that property held for productive use in the taxpayer's trade or business, or property held for investment purposes, is exchanged for property of a like-kind that also is held for productive use in a trade or business or for investment.

New Law The New Law limits like-kind exchange treatment to real property not held primarily for sale. The New Law treats an interest in a partnership which has made a §761(a) election as an interest in each of the assets of the partnership and not as an interest in a partnership. The New Law treats real property located in a foreign country as not like-kind to real property located in the United States.

Is effective for exchanges completed after December 31, 2017, except to exchanges in which the exchanged property is disposed of or the exchange property is received before December 31, 2017.

E.

CONTRIBUTIONS TO CAPITAL

Current Law The gross income of a corporation generally does not include contributions to its capital. Contributions to aid in construction are contributions to the capital of a corporation except that contributions to aid in the construction of a regulated public utility that provides water or sewage disposal services are tax-free contributions to the capital of a corporation. Property acquired by a corporation which is not contributed by a shareholder has an adjusted basis of zero. If the contribution is money then the corporation must reduce the basis of property acquired with the contributed money within the 12-month period following the contribution, and then reduce basis of other property held by the corporation.

Is effective for contributions made and transactions entered into after the date of enactment.

New Law The New Law retains the general rule that, in the case of a corporation, gross income does not include any contribution to the capital of the taxpayer. However, it provides two exceptions under which the term “contribution to the capital of the taxpayer” does not include (1) any contribution in aid of construction or any other contribution as a customer or potential customer, and (2) any contribution by any governmental entity or civic group (other than a contribution made by a shareholder as such).

Is generally effective for contributions made after the date of enactment; however, an exception applies to contributions made after the date of enactment by a governmental entity pursuant to a master development plan approved by a governmental entity prior to the date of enactment.

F.

DEDUCTION FOR CERTAIN FINES, PENALTIES, AND OTHER AMOUNTS

Current Law No deduction is allowed for fines or penalties paid to a government for the violation of any law.

New Law The New Law disallows deductions for any otherwise deductible amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or specified nongovernmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law. An exception applies to any amount paid or incurred as taxes due. An exception also applies to payments that are either restitution (including remediation of property) or amounts required to come into compliance with any law that was violated or involved in the investigation or inquiry, that are identified in the court order or settlement agreement as restitution, remediation, or required to come into compliance. Any restitution for failure to pay any tax and assessed as restitution under the Internal Revenue Code is deductible only to the extent it is allowed as a deduction if it had been timely paid. The IRS could challenge the characterization of an amount so identified, but no deduction is allowed unless the identification is made. Restitution or included remediation of property does not include reimbursement of government investigative or litigation costs.

These rules apply only if a government (or other entity treated in a manner similar to a government under the provision) is a complainant or investigator with respect to the violation or potential violation of any law.

Government agencies (or entities treated as such agencies under the proposal) have to report to the IRS and the taxpayer the amount of each settlement agreement or order entered into if the aggregate amount required to be paid or incurred to or at the direction of the government is at least $600 (or other amount specified by the Treasury). The report has to separately identify any amounts that are for restitution or remediation of property, or correction of noncompliance, and has to be made at the time the agreement is entered into.

Is effective for amounts paid or incurred after the date of enactment, except that it will not apply to amounts paid or incurred under any binding order or agreement entered into before that date. The changes however, apply to amounts paid or incurred under a binding order or agreement entered into before the date of enactment if the order or agreement requires court approval, unless such approval was obtained before the date of enactment.

G. DENIAL OF DEDUCTION FOR SETTLEMENTS SUBJECT TO A NONDISCLOSURE AGREEMENT PAID IN CONNECTION WITH SEXUAL HARASSMENT OR SEXUAL ABUSE Current Law Taxpayers generally may deduct ordinary and necessary expenses paid or incurred in carrying on any trade or business, but several exceptions apply.

New Law The New Law disallows a deduction for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if the payment is subject to a nondisclosure agreement.

Is effective for amounts paid or incurred after the date of enactment.

H.

LOCAL LOBBYING EXPENSE DEDUCTION

Current Law Businesses are not allowed to deduct expenses related to lobbying and political expenditures with respect to legislation and candidates for public office. An exception to this rule allows for the deduction of lobbying expenses with respect to legislation before local government bodies, including Indian tribal governments.

New Law The New Law eliminates the exception so that lobbying expenses with respect to legislation before local government bodies and Indian tribal governments are no longer be deductible.

The change is effective for amounts paid or incurred after December 31, 2017.

I.

DOMESTIC PRODUCTION ACTIVITIES DEDUCTION

Current Law Taxpayers may claim a deduction equal to 9 % of the lesser of the taxpayer's qualified production activities income, which is derived from property that was manufactured, produced, grown, or extracted within the United States, or the taxpayer's taxable income for the tax year.

New Law The New Law repeals the domestic production activities deduction.

The change is effective for taxable years beginning after December 31, 2017.

J.

ENTERTAINMENT, ETC EXPENSES

Current Law Employers can only deduct expenses associated with entertainment, amusement, or recreational activities if they establish that the activity was directly related to the active conduct of the employer's trade or business or a facility used in connection with such activity. If an employer is entitled to deduct entertainment expenses, there generally is a 50% cap of the amount otherwise deductible. No deduction is allowed for membership dues with respect to any club organized for entertainment purposes. Gross income

generally includes the value of employer-provided fringe benefits, except as discussed below. In general, a service provider includes in gross income the amount by which the fair market value of a fringe benefit exceeds the sum of the amount paid by the service provider and the amount that is specifically excluded from gross income. Certain employer-provided fringe benefits are excluded from a service provider's gross income. These include de minimis fringes, qualified transportation fringes, and meals that are provided for the convenience of the employer. Qualified transportation fringes include qualified parking, transit passes, vanpool benefits, and qualified bicycle commuting reimbursements.

New Law The New Law repeals the present-law exception to the deduction disallowance for entertainment expenses that are directly related to a taxpayer's trade or business. The New Law also makes obsolete the 50% deduction cap.

The New Law allows taxpayers to continue to deduct 50% of food and beverage expenses associated with operating their trade or business, but expands this 50% limitation to expenses of the employer associated with providing food and beverages to employees through an eating facility that meets requirements for de minimis fringes.

The New Law disallows a deduction for (1) expenses associated with providing any qualified transportation fringe benefit to employees, as well as (2) any expenses incurred for providing transportation for commuting between an employee's residence and place of employment, except as necessary to ensure the safety of an employee.

The New Law disallows an employer's deduction for expenses associated with meals provided for the convenience of the employer on the employer's business premises or provided on or near such premises through an employer-operated facility that meets certain requirements.

Is effective for amounts paid or incurred after December 31, 2017. The effective date of the meals disallowance is for taxable years beginning after December 31, 2025.

K.

RESEARCH AND EXPERIMENTAL EXPENDITURES

Current Law Taxpayers my elect either to deduct currently research or experimental expenditures paid or incurred in connection with a present or future trade or business or to treat such expenditures as deferred expenses and amortize these costs over a period of not less than 60 months.

New Law Specified research or experimental expenditures, including software development expenditures, are capitalized and amortized ratably over a five-year period (15 years if attributable to research conducted

outside of the United States). Land acquisition and improvement costs, and mine (including oil and gas) exploration costs, are not subject to this rule. Upon retirement, abandonment, or disposition of property, any remaining basis continues to be amortized over the remaining amortization period. Applies on a cutoff basis to expenditures paid or incurred in tax years beginning after Dec. 31, 2021.

L.

UNUSED BUSINESS CREDITS DEDUCTION

Self-created property not treated as a capital asset Current Law A self-created patent, invention, model or design, or secret formula or process is treated as a capital asset.

New Law The New Law adds self-created patents, inventions, models or designs, or secret formulae or processes to the list of assets that are not capital assets. The New Law also preserves the election to treat musical compositions or copyrights in musical works as capital assets.

Is effective for dispositions after December 31, 2017.

XII. BUSINESS CREDITS A.

ORPHAN DRUG CREDIT

Current Law Drug manufacturers may claim a credit (the orphan drug credit), as part of the general business credit, equal to 50% of qualified clinical testing expenses.

New Law The New Law changes the orphan drug credit rate from 50% to 25%. Taxpayers are also able to elect a reduced credit in lieu of reducing otherwise allowable deductions (similar to the research credit under ยง280C).

Is effective for amounts paid or incurred in taxable years beginning after December 31, 2017.

B.

REHABILITATION CREDIT

Current Law The rehabilitation credit is a one-time credit (either 20% or 10%) based on a fixed percentage of rehabilitation costs incurred in connection with the rehabilitation of certain real property.

New Law The New Law provides a 20% credit (to be claimed ratably over a five-year period beginning in the tax year when the structure is placed in service) for qualified rehabilitation expenditures with respect to a historic structure. The amendment is generally effective for amounts paid or incurred after Dec. 31, 2017, with a transition rule for specifically qualified buildings.

C.

EMPLOYER CREDIT FOR PAID FAMILY AND MEDICAL LEAVE

Current Law The Code does not provide a tax benefit to employers for compensation paid to employees while on leave.

New Law The New Law allows eligible employers (employers that allow all qualifying full-time employees at least two weeks annual paid family and medical leave, and allow part-time employees a commensurate amount of leave on a pro rata basis, without regard to leave paid for by a state or local government) to claim a business credit equal to 12.5% of the wages paid to qualifying employees during any period during which such employees are on family and medical leave (FMLA leave) if the payment rate under the program is 50% of the wages normally paid to an employee. The credit is increased by 0.25 percentage points (but not above 25%) for each percentage point by which the rate of payment exceeds 50%.

A qualifying employee is any employee, as defined in §3(e) of the Fair Labor Standards Act of 1938, whom the employer has employed for at least one year, and whose compensation for the preceding year was less than or equal to 60% of the compensation threshold for highly compensated employees. If an employer provides paid leave as vacation leave, personal leave, or other medical or sick leave, this paid leave is not considered family and medical leave.

The credit is a part of the general business credit.

Is effective for wages paid in taxable years beginning after December 31, 2017, but the credit will not apply to wages paid in taxable years beginning after December 31, 2019.

XIII. EXCESSIVE EMPLOYEE REMUNERATION Current Law Generally, a deduction for compensation paid or accrued with respect to a “covered employee” of a publicly traded corporation is capped at $1 million per year. The deduction limitation does not apply to commissions or performance-based remuneration (including stock options).

For purposes of the deduction limitation, a covered employee is defined by the IRS to include the principal executive officer (PEO) and the three highest compensated officers (other than the PEO) as of the close of

the tax year. The current IRS definition does not necessarily include the chief financial officer (CFO).

However, the SEC, for securities law purposes, currently defines a “covered employee” to include the chief executive officer (CEO), the CFO, and the three highest-paid employees, other than the CEO and CFO, who were serving as executive officers at the end of the last completed fiscal year.

New Law Repeals the commission and performance based compensation exceptions to the $1 million yearly limit on the deduction for compensation paid with respect to a covered employee of a publicly traded corporation.

“Covered employees” include the CEO, CFO and the 3 highest paid employees. Once an employee qualifies as a covered employee, the deduction limitation applies to that person so long as the corporation pays remuneration to that person (or to any beneficiaries). Applicable to tax years beginning after Dec. 31, 2017, except that a transition rule applies so that no changes take effect with respect to a written binding contract in effect on Nov. 2, 2017, that is not modified in any material respect on or after such date.

XIII.

QUALIFIED EQUITY GRANTS

Current Law No provision.

New Law New §83(i) provides tax benefits to employees of certain start-up companies. Generally, an employee may make a special election with respect to qualified stock transferred to them, so that no amount is included in income for the first tax year in which the rights of the employee in such stock are transferable or are not subject to a substantial risk of forfeiture, whichever is applicable. Income taxation can be deferred by the employee until the earlier of (a) five years, or (b) the occurrence of a specified event, such as the stock of the company being readily tradable on an established securities market, or a revocation of the election. A written plan must provide that at least 80% of the employees of the company are granted stock options or restricted stock units (RSUs) with the same rights and privileges. The 80% eligibility requirement is met only if affected employees (new hires or existing employees) are either granted stock options or RSUs for that year, and not a combination of both. Certain notice requirements apply. Where an inclusion deferral election is made with respect to an incentive stock option (including one under an employee stock purchase plan), the option is treated as a nonqualified stock option for FICA purposes. Excluded employees who are not considered qualified individuals able to make a special election include individuals who first become a 1% owner or one of the four highest XIV. TAXATION OF FOREIGN INCOME AND FOREIGN PERSONS A. EXCISE TAX RATE FOR STOCK COMPENSATION OF INSIDERS IN EXPATRIATED CORPORATIONS

Current Law If a shareholder recognizes gain on a transaction described in §7874 (and even if the resulting entity is treated as a foreign corporation), then any disqualified individuals will be subject to a 15% excise tax on the value of specified stock compensation (including stock options and stock-linked compensation) held with respect to the former U.S.-incorporated entity.

New Law The New Law increases the rate of the excise tax under §4985 to 20%.

Is effective for corporations first becoming expatriated corporations (as defined in §4985) after the date of enactment.

B. ESTABLISHMENT OF PARTICIPATION EXEMPTION SYSTEM FOR TAXATION OF FOREIGN INCOME 100% deduction for foreign-source portion of dividends & repatriation “participation exemption system” for taxation of foreign income Current Law U.S. citizens, resident individuals, and U.S. corporations are subject to U.S. tax on worldwide income. U.S. shareholders foreign corporations are generally not taxed on the income earned by the foreign corporation until the income is distributed as a dividend to the U.S. shareholders.

New Law The New Law provides a 100% deduction for foreign-source portion of dividends received from “specified 10-percent owned foreign corporations” by U.S. corporate shareholders, subject to a one-year holding period. No foreign tax credit (or deduction for foreign taxes paid with respect to qualifying dividends) is permitted for foreign taxes paid or accrued with respect to a qualifying dividend. Deduction is unavailable for “hybrid dividends.” The New Law repeals the active trade or business exception under §367, which generally disallows nonrecognition treatment for transfers of property to a foreign corporation. The New Law imposes a mandatory tax on post-86 accumulated foreign earnings held in cash or cash equivalents of 15.5% and on post-86 accumulated foreign earnings held in illiquid assets of 8%. Taxpayers is able to elect to pay any resulting liability over an eight-year period. Limitations period for assessment of tax on these mandatory inclusions are extended to six years. Recapture rule imposing 35% tax rate on mandatory inclusions of a U.S. shareholder that becomes an expatriated entity within 10 years of Dec. 22, 2017; U.S. shareholders acquired by a surrogate corporation are within the scope of the provision only if the surrogate corporation inverted after Dec. 22, 2017. Accumulated deferred foreign income is excluded from REIT gross income tests. REITs also be permits to pay resulting liability over eight-year period. Election to

preserve NOLs and coordinate NOL, ODL, and foreign tax credit carryforward rules upon transition to participation exemption system. Special rules for S corporation shareholders.

C. SPECIAL RULES RELATING TO SALES OR TRANSFERS INVOLVING SPECIFIED 10% OWNED FOREIGN CORPORATIONS Current Law Section 961 provides guidance with respect to basis adjustments to stock in CFCs and other property.

Under §1248(a), if a U.S. person sells or exchanges stock in a foreign corporation and that person was a 10% U.S. shareholder at any time during the five-year period ending on the date of the sale or exchange when the foreign corporation was a CFC, then the gain recognized on the sale or exchange of the stock will be included in the gross income of the U.S. person as a dividend.

Section 1016 requires that proper adjustments must be made in respect of the property, including with respect to §1059, which requires corporate shareholders to reduce basis in stock by the nontaxed portion of extraordinary dividends.

Section 964(e) provides that if a CFC recognizes gain on the sale or exchange of stock in any other foreign corporation the gain will be treated as a dividend and included in the gross income of the CFC to the same extent that it has been under §1248(a) if the CFC were a U.S. person.

Section 367(a) provides that if a U.S. person transfers property to a foreign corporation in connection with certain nonrecognition transactions, the foreign corporation will not be treated as a corporation for purposes of determining gain recognition. Section 367(a)(3) provides exceptions to the general rule for transfers of property used in the active conduct of a trade or business; however, the exception does not apply to gain realized on the transfer of assets of a foreign branch of a U.S. person to foreign corporation to the extent that the foreign branch has previously deducted losses. §367(a)(3)(C).

New Law The New Law expands the definition of U.S. shareholder to include U.S. persons who own 10% or more of the total value of shares of all classes of stock of such foreign corporation.

D. TREATMENT OF DEFERRED FOREIGN INCOME UPON TRANSITION TO “PARTICIPATION EXEMPTION SYSTEM” OF TAXATION Current Law Section 965 provides a one-time deduction of 85% for certain dividends received by a U.S. corporate shareholder from its CFCs. The U.S. shareholder had to elect the deduction and the amount eligible for the temporary deduction was subject to several limitations and was accompanied by a proportional

disallowance of the foreign tax credit with respect to the dividends for which the deduction was allowed.

The amount of dividends eligible for the 85% deduction could not exceed the amount by which the cash dividends exceeded the taxpayer's average repatriation level calculated for a three-year base period preceding the year of the deduction. A separate limitation capped the eligible dividends to the greater of $500 million or the amount identified on the taxpayer's recent audited financial statements as earnings invested indefinitely outside the United States. Increases in related-party indebtedness in the year further limited the availability of the deduction. The dividends were required to be invested in the United States in accordance with a domestic reinvestment plan approved by the taxpayer's senior management and board of directors.

Since 2004 there have been additional proposals to use estimated tax collections from a proposed onetime tax on untaxed foreign earnings under a reduced tax rate as a means of long-term funding for the Highway Trust Fund. The proposals have varied with respect to whether tax should be applied to certain corporation shareholder or all shareholders, whether the one-time tax should be mandatory or voluntary, and whether the tax should be applied as a stand-alone provision or as part of broad tax reform.

New Law The tax rates applicable to the separate categories of cash or other assets is 15.5% and 8%, respectively.

Similarly, the amounts by which foreign tax credits are reduced also changed. The rules for coordination of also amended ยง965 with the limitations on foreign tax credits.

E.

MODIFICATIONS RELATED TO FOREIGN TAX CREDIT SYSTEM

Repeal of indirect foreign tax credits; determination of deemed foreign tax credit on current-year basis Current Law Foreign-source income earned by a foreign subsidiary of a U.S. corporation generally is not subject to U.S. tax until the income is distributed as a dividend to the U.S. parent corporation. Taxpayers are allowed foreign tax credit or a deduction for foreign income taxes paid on the income out of which the dividend is paid, but generally only when the foreign earnings are distributed to the U.S. parent or otherwise subject to U.S. taxation. The foreign tax credit generally is available to offset, in whole or in part, the U.S. tax owed on foreign-source income.

Generally, a U.S. shareholder is subject to U.S. tax on subpart F income of its CFCs, even if the income is not repatriated. A separate foreign tax credit is available to U.S. shareholders for foreign taxes paid on the subpart F income.

New Law

The New Law repeals the indirect foreign tax credit under ยง902. A foreign tax credit is permitted, for subpart F income included in the gross income of a domestic corporation that is a U.S. shareholder of a CFC, without regard to pools of foreign earnings kept abroad.

The New Law also includes changes to the application of the gross up rules under ยง78, the dividend reference in ยง907(c)(3)(A), the qualified electing fund (QEF) rules under ยง1295, and conforming amendments F.

SOURCE OF INVENTORY SALES INCOME

Current Law Income from the sale or exchange of inventory property is sourced on the basis of sales and production activities, as provided by regulation. Under Reg. ยง1.863-3(b)(1), 50% of such income is treated as attributable to production activity and is generally sourced where the production assets are located, while the remaining 50% of the income is attributable to sales activity and is sourced where the rights, title, and interest of the seller are transferred to the buyer.

New Law The New Law provides that income from the sale or exchange of inventory property is sourced solely on the basis of the production activities with respect to that property, instead of being sourced on the basis of sales and production activities.

Is effective for taxable years beginning after December 31, 2017.

G.

SEPARATE FOREIGN TAX CREDIT LIMITATION BASKET FOR FOREIGN BRANCH INCOME

Current Law U.S. owners of foreign branches are subject to U.S. tax on income earned by the foreign branch, and may receive a foreign tax credit for taxes paid to a foreign country on income earned by that branch. However, U.S. owners are not required to include income earned by the foreign branch in a separate category, i.e., a foreign tax credit limitation basket, for purposes of calculating the foreign tax credit.

New Law The New Law requires foreign branch income to be allocated to a specific foreign tax credit limitation basket. Foreign branch income is defined as the business profits of a U.S. person that are attributable to at least one qualified business unit (QBU) in one or more foreign countries. The New Law specifies that the business profits of a QBU does not include passive category income. However, the New Law states that other rules relating to the business profits of a QBU is established by the Secretary of the Treasury.

Is effective for taxable years beginning after December 31, 2017.

H. ELECTION TO INCREASE PERCENTAGE OF DOMESTIC TAXABLE INCOME OFFSET BY OVERALL DOMESTIC LOSS TREATED AS FOREIGN SOURCE Current Law In the foreign tax credit system, if an overall domestic loss (ODL) offsets foreign-source income, then in later years, a portion of the taxpayer's U.S.-source taxable income is treated as foreign-source income. The portion of the taxpayer's U.S.-source income for years succeeding the ODL is the lesser of the amount of the loss (to the extent not used in prior taxable years) or 50% of the taxpayer's U.S.-source income.

New Law The New Law provides an election to increase the percentage of taxable income treated as foreign source by allowing that if any “pre-2018 unused overall domestic loss” is taken into account for any “applicable taxable year,” the taxpayer may elect to have §904(g)(1)(B) apply to the loss at a percentage greater than 50%, but not greater than 100%. The term “pre-2018 unused overall domestic loss” means any ODL that arises in a qualified taxable year beginning before January 1, 2018 that has not been used under §904(g)(1) for any taxable year beginning before January 1, 2018. “Applicable taxable year” is defined as taxable years beginning after December 31, 2017 and before January 1, 2028.

Is effective for taxable years beginning after December 31, 2017.

I.

MODIFICATION OF SUBPART F PROVISIONS

1.

Qualified investments

Current Law Foreign shipping income earned between 1976 and 1986 was not subject to current U.S. tax under subpart F if the income was reinvested in certain qualified shipping investments, however, net decreases in qualified shipping investments were subject to inclusion in subpart F income.

New Law The New Law repeals §955 which provides definitions of terms related to the inclusion in gross income of a U.S. shareholder's pro rata share of the CFC's previously excluded subpart F income withdrawn from foreign base company shipping operations under §951(a)(1)(A)(iii). Congress deleted shipping income from foreign base company income in the American Jobs Creation Act of 2004, but did not repeal §951(a)(1)(A)(iii) or §955 at that time, apparently to account for investments remaining in shipping operations that is withdrawn in future years. Congress has apparently decided that very little remains invested in qualified shipping operations as defined in §955. Conforming amendments streamline §951(a)(1)(A) by deleting not only the reference to investments in shipping operations in (iii), but also the

reference to pre-1975 investments in less developed countries in (ii) that were also includible in subpart F income when withdrawn.

Is effective for taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders in which or with which such taxable years of foreign corporations end.

2.

Foreign base company income

Current Law A U.S. shareholder of a CFC is subject to U.S. tax under subpart F on foreign base company oil related income regardless of whether the CFC distributes such income to the U.S. shareholder.

For tax years of CFCs beginning before 2020, and tax years of U.S. shareholders in which or with which such tax years of the CFC end, a special “look-through” rule provides that passive income received by one foreign subsidiary from a related foreign subsidiary generally is not includible in the taxable income of the U.S. shareholder, provided such income was not already subject to current U.S. tax or effectively connected with a U.S. trade or business.

New Law The New Law makes two changes to foreign base company income (FBCI). The first repeals foreign oil related income as a category of FBCI. Congress added foreign oil related income to FBCI in the Tax Equity and Fiscal Responsibility Act of 1982 because Congress believed that multinational oil companies paid too little U.S. tax on their foreign operations because they operated those operations through foreign subsidiaries in low-tax jurisdictions.

Under the repeal, income derived by a CFC from foreign oil related activity that does not qualify as FBCI under another category of FBCI will not be includible in subpart F income, creating quite a windfall for oil and gas companies with CFCs. The change is effective for taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders in which or with which such taxable years of foreign corporations end.

The second amendment to FBCI makes permanent the look-through rule for related CFCs in §954(c). The look-through provides that certain types of passive income accrued by a CFC from a related person will not be treated as subpart F income (and therefore not includible currently in the taxable income of U.S. shareholders) to the extent that income is attributable or allocable to income of the related person that is neither subpart F income nor income effectively connected with a U.S. trade or business.

Is effective for taxable years of foreign corporations beginning after December 31, 2017, and to taxable years of U.S. shareholders in which or with which such taxable years of foreign corporations end.

3.

Attribution from foreign shareholders

Current Law Section 958(b)(4) prevents the attribution of stock ownership from a foreign person to a U.S. person.

New Law The New Law expands the definition of U.S. shareholder to include U.S. persons who own 10% or more of the total value of shares of all classes of stock of such foreign corporation.

4.

Immediate CFC status

Current Law Section 951(a)(1) requires that foreign corporation be a controlled foreign corporation (CFC) for an uninterrupted period of 30 days or more before it is classified as a CFC for tax purposes.

New Law The New Law amends ยง951(a)(1) by removing this requirement. Taxpayers have to be careful to not accidentally create a CFC that is a foreign corporation with more than 50% U.S. ownership of 10% U.S. shareholders (or 25% U.S. ownership by 10% U.S. shareholders in the case of an insurance company).

Is effective for taxable years beginning after December 31, 2017, and to taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end.

5.

Modification of definition of United States shareholder

Current Law Section 951(b) defines a U.S. shareholder as a U.S. person (as defined in ยง957(c)) who owns (within the meaning of ยง958(a)), or is considered as owning by applying the rules of ownership of ยง958(b), 10% or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation.

New Law The New Law expands the definition of U.S. shareholder to include an U.S. person who owns 10% or more of the total value of shares of all classes of stock of a foreign corporation.

Is effective for the last taxable year of foreign corporations beginning after December 31, 2017, and for taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end.

6.

Prevention of Base Erosion

Current Law Under the Code, U.S. corporations that completed outbound transfers of goodwill, going concern value, or workforce in place received favorable tax treatment. Corporations generally may deduct all of their interest expense. If a corporation capitalizes a foreign subsidiary with debt, the earnings from that debt generally will not be subject to U.S. tax until distributed as a dividend by the foreign subsidiary. Therefore, U.S. corporations can achieve a net U.S. tax benefit by deducting the interest expense currently while deferring U.S. tax on the earnings. Additionally, irrespective of the use of the proceeds of the debt, if the debt is issued by a foreign affiliate rather than by the U.S. entity, the corresponding interest income generally is subject to a statutory 30% withholding tax, which can be reduced under an applicable treaty.

New Law The Act expands the definition of intangible property to include goodwill, going concern value, workforce in place, or any other item the value of which is not attributable to tangible property or the services of an individual. In the case of transfers of multiple intangible properties in one or more related transactions, valuation of the intangible property on an aggregate basis is explicitly permitted if the Commissioner determines that an aggregate basis achieves a more reliable result than an asset-by-asset approach. The Act denies deductions for certain relatedparty amounts paid or accrued in hybrid transactions or with hybrid entities. Dividends received by an individual shareholder of a surrogate foreign corporation are not eligible for reduced rate on dividends in §1(h).

The Act imposes tax on “global intangible low-taxed income” (GILTI) of U.S. shareholders of CFCs, with a deduction of 37.5% for foreign-derived intangible income (FDII) plus 50% of the GILTI, and the amount treated as a dividend under section 78. Deductions are reduced for tax years beginning after Dec. 31, 2025. The Act imposes a minimum base erosion anti-abuse tax (BEAT) for certain taxpayers. The calculation of the tax is based on the excess of 10% of the modified taxable income over the amount of regular tax liability, which is reduced by certain credits. The 10% rate is 5% for tax years beginning in calendar year 2018, and 12.5% for tax years beginning after Dec. 31, 2025. Certain banks and securities dealers are subject to increased rates.

XV. EXEMPT ORGANIZATIONS A. UNRELATED BUSINESS TAXABLE INCOME INCREASED BY AMOUNT OF CERTAIN FRINGE BENEFIT EXPENSES FOR WHICH DEDUCTION IS DISALLOWED Current Law Tax-exempt entities are allowed to provide their employees with fringe benefits in the same manner as taxable entities. Such fringe benefits include transportation fringe benefits, any parking facility used in connection with qualified parking, or any on-premises athletic facility or other athletic facilities. These benefits can be provided free from tax to either the employer or employee.

New Law The New Law provides that tax-exempt entities is taxed on the value of fringe benefits provided to their employees by treating the funds used to pay for such benefits as unrelated business taxable income. The provision does not apply to fringe benefits directly connected with an unrelated trade or business which is regularly carried on by the organization.

Is effective for amounts paid or incurred after December 31, 2017.

B. UNRELATED BUSINESS TAXABLE INCOME SEPARATELY COMPUTED FOR EACH TRADE OR BUSINESS Current Law Under regulations, a tax-exempt organization that operates more than one unrelated trade or business calculates its UBTI on a gross basis, allowing for the aggregating of income and deductions across all such business in determining the organization's taxable income. This allows an organization to offset income derived from one trade or business with deductions derived from another trade or business.

New Law The New Law modifies UBTI to require an organization that operates more than one unrelated trade or business to separately calculate UBTI for each trade or business — in effect prohibiting an organization from using a deduction derived from one trade or business to offset income derived from another.

Is effective for taxable years beginning after December 31, 2017, with a special rule for net operating loss carryovers.

XVI. EXCISE TAXES A.

EXCISE TAX ON INVESTMENT INCOME OF PRIVATE COLLEGES AND UNIVERSITIES

Current Law Colleges and universities are not subject to the 2% excise tax on their net investment income that applies to private foundations.

New Law The New Law imposes an excise tax equal to corporate tax rate (set at 21% by the New Law) on compensation in excess of $1 million paid to an applicable tax-exempt organization’s five highest paid employees for a tax year (or any person who was such an employee in any tax year beginning after 2016).

The excise tax also applies to parachute payments exceeding the portion of the base amount (defined as the average annual compensation of the employee for the five tax years before the employee’s separation

from employment) that is allocated to the payment. The tax on excess parachute payments applies only to payments made to employees who are highly compensated (within the meaning of §414(q). The New Law treats compensation as paid when rights to remuneration are no subject to a substantial risk of forfeiture (as defined in §457(f)(3)(B)). The New Law exempts from the definition of “compensation” for purposes of the tax, remuneration paid to licensed medical professionals in exchange for medical services performed.

The tax applies to tax years beginning after 2017.

B.

EXCISE TAX ON TAX-EXEMPT ORGANIZATION EXECUTIVE COMPENSATION

Current Law There is a $1 million per year limitation on the compensation deduction for certain employees of a publicly held corporation (with exceptions for certain types of compensation). There are also deduction limitations on certain “parachute payments.” There are currently no such limitations on the compensation for employees of tax-exempt entities.

New Law The New Law imposes a 1.4% excise tax on certain private colleges and universities and their related organizations. This provision applies only to private institutions that have more than 500 students, have at least 50% of their students located in the United States, and have assets of at least $500,000 per fulltime student (not including assets used directly by the institution in carrying out the institution’s educational purpose). The assets and net investment income of related organizations is treated as the assets of the private college or university. The New Law clarifies that an institution’s number of students is to be determined using the daily average number of full-time (or full-time equivalent) students attending the institution. The changes apply for tax years beginning after 2017.

XVII. MISCELLANEOUS PROVISIONS A.

QUALIFIED OPPORTUNITY ZONES

Current Law The Code contains many tax incentives to aid economically distressed areas. Many of these incentives seek to attract the investment of capital into distressed communities that may not have otherwise attracted such investment. These investments may be used to start new businesses, develop abandoned property, or provide low-income housing.

New Law The New Law allows governors (or the Secretary, if a governor fails to submit nominations for certification and designation within a certain time period) to nominate a certain number of low-income community population census tracts as qualified opportunity zones. The New Law allows zones certified designated as

qualified opportunity zones to be such beginning on the date of designation and ending at the close of the tenth calendar year beginning on or after the date of designation.

Governors will submit nominations for a limited number of opportunity zones to the Secretary for certification and designation. The maximum number of low-income communities that a governor may designate depends on the number of low-income communities throughout the state. If a State contained less than 100 low-income communities, a governor could designate up to 25 tracts. If a State contained more than 100 low-income communities, the Governor could designate tracts not to exceed 25% of the number of low-income communities. If a governor failed to submit nominations within a certain time period, then the Secretary must do so.

B.

TEMPORARY DEFERRAL OF CAPITAL GAINS REINVESTED IN AN OPPORTUNITY FUND

The first tax incentive in the New Law provides for the deferral of income for capital gains if the gains are reinvested in a qualified opportunity fund. The New Law will define a qualified opportunity fund as an investment vehicle organized as a qualified opportunity zone that holds at least 90% of its assets in qualified opportunity zone property. It also provides that the certification process for a qualified opportunity fund be done by the Department of Treasury's Community Development Financial Institutions Fun (“CDFI�) and mirror the process for allocating the new markets tax credit.

The New Law will define a qualified opportunity zone property as any qualified opportunity zone stock, any qualified opportunity zone partnership interest, or any qualified opportunity zone business property.

The New Law limits the maximum amount of gain that may be deferred to be equal to the amount invested in a qualified opportunity fund by the taxpayer during the 180-day period beginning on the date of the sale of the asset to which the deferral pertains. The New Law requires that amounts exceeding the maximum deferral amount be recognized as capital gains and, thus, be includible in gross income.

The New Law also provides basis adjustments if an investment in a qualified opportunity zone fund is held for a certain period of time. The New Law provides the basis on the original gain increase by 10% of the original gain if the taxpayer holds the investment in the qualified opportunity zone fund for at least 5 years.

The New Law provides that if the taxpayer holds the asset or investment for seven years, the basis will increase an additional 5% of the original gain. The New Law provides that the deferred gain be recognized on the earlier of (1) the date on which the qualified opportunity zone investment is disposed of or December 31, 2026. Only taxpayers who rollover capital gains of non-zone assets before December 31, 2026, is able to take advantage of the special treatment of capital gains for non-zone and zone realizations.

The New Law provides that the basis of an investment in a qualified opportunity zone fund immediately after its acquisition is zero. However, if the investment is held by the taxpayer for at least five years, the basis on the investment is increased by 10% of the deferred gain. The New Law further provides that if the investment is held by the taxpayer for at least seven years, the basis on the investment is further increased

by an additional 5% of the deferred gain. If the investment is held by the taxpayer until at least December 31, 2026, then the basis in the investment increases by the remaining 85% of the deferred gain.

C. PERMANENT EXCLUSION OF CAPITAL GAINS FROM THE SALE OR EXCHANGE OF AN INVESTMENT IN AN OPPORTUNITY FUND Current Law The second tax incentive in the New Law allows any post-acquisition capital gains on investments in opportunity zone funds that are held for at least 10 years to be excluded from gross income. The New Law provides the taxpayer with an election, in the case of the sale of exchange of an investment in a qualified opportunity zone fund held for more than 10 years, to have the basis of such investment be equal to the fair market value of the investment at the date of such sale of exchange. The New Law does not prohibit taxpayers from recognizing losses associated with investments in qualified opportunity zone funds as under Is effective on the date of enactment.

New Law The New Law provides that each population census tract in each U.S. possession that is a low-income community is deemed certified and designated as a qualified opportunity zone effective on the date of enactment. The designation of a population census tract as a qualified opportunity zone remains in effect for the period beginning on the date of the designation and ending at the close of the tenth calendar year beginning on or after the date of designation.

Second, the New Law provides that the chief executive officer of the state (which includes the District of Columbia) may submit nominations for a limited number of opportunity zones to the Secretary for certification and designation. The maximum number of low-income communities that may be designated as opportunity zones depends on the number of low-income communities throughout the state. If a state contains less than 100 low-income communities, the chief executive officer may designate up to 25 tracts. If a State contains more than 100 low-income communities, the chief executive officer may designate tracts not exceed 25% of the number of low-income communities. If a chief executive officer fails to submit nominations within a certain time period, then the Secretary must do so.

D.

TEMPORARY DEFERRAL OF CAPITAL GAINS REINVESTED IN AN OPPORTUNITY FUND

The first tax incentive in the New Law provides for the deferral of income for capital gains if the gains are reinvested in a qualified opportunity fund. The New Law defines a qualified opportunity fund as an investment vehicle organized as a qualified opportunity zone that holds at least 90% of its assets in qualified opportunity zone property. The New Law also provides that the certification process for a qualified opportunity fund be done by the Department of Treasury's Community Development Financial Institutions Fun (“CDFI�) and mirror the process for allocating the new markets tax credit.

The New Law defines a qualified opportunity zone property as any qualified opportunity zone stock, any qualified opportunity zone partnership interest, and any qualified opportunity zone business property. The New Law also limits the maximum amount of gain that may be deferred to be equal to the amount invested in a qualified opportunity fund by the taxpayer during the 180-day period beginning on the date of the sale of the asset to which the deferral pertains. The New Law requires that amounts exceeding the maximum deferral amount be recognized as capital gains and, thus, be includible in gross income.

The New Law additionally provides basis adjustments if an investment in a qualified opportunity zone fund is held for a certain period of time.

The New Law provides the basis on the original gain increase by 10% of the original gain if the taxpayer holds the investment in the qualified opportunity zone fund for at least 5 years.

The New Law provides that if the taxpayer holds the asset or investment for seven years, the basis will increase an additional 5% of the original gain. It also provides that the deferred gain be recognized on the earlier of (1) the date on which the qualified opportunity zone investment is disposed of or December 31, 2026. The New Law provides that only taxpayers who rollover capital gains of non-zone assets before December 31, 2026, will be able to take advantage of the special treatment of capital gains for non-zone and zone realizations under the proposal. The New Law provides that the basis of an investment in a qualified opportunity zone fund immediately after its acquisition is zero. However, the New Law allows, if the investment is held by the taxpayer for at least five years, the basis on the investment to be increased by 10% of the deferred gain. The New Law further provides that if the investment is held by the taxpayer for at least seven years, the basis on the investment is further increased by an additional 5% of the deferred gain.

The New Law provides that, if the investment is held by the taxpayer until at least December 31, 2026, then the basis in the investment increases by the remaining 85% of the deferred gain.

E. PERMANENT EXCLUSION OF CAPITAL GAINS FROM THE SALE OR EXCHANGE OF AN INVESTMENT IN AN O FUND The second tax incentive in the New Law allows for the exclusion from gross income any post-acquisition capital gains on investments in opportunity zone funds that are held for at least 10 years. The New Law provides the taxpayer with an election, in the case of the sale of exchange of an investment in a qualified opportunity zone fund held for more than 10 years, to have the basis of such investment be equal to the fair market value of the investment at the date of such sale of exchange. It does not prohibit taxpayers from recognizing losses associated with investments in qualified opportunity zone funds as under Current Law. These changes are effective on the date of enactment, but gain deferral is unavailable with respect to any sale or exchange made after December 31, 2026, or investments in qualified opportunity zones made after December 31, 2026.